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Efficient Compensation for Employees’ Inventions

Roland Kirstein and Birgit Will
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Birgit Will: University of Saarland

No 2004-1-1080, German Working Papers in Law and Economics from Berkeley Electronic Press

Abstract: We analyze the legal reform concerning employees' inventions in Germany. Using a simple principal-agent model, we derive a unique efficient payment scheme: a bonus which is contingent on the project value. We demonstrate that the old German law creates inefficient incentives. However, the new law concerning university employees and the pending reform proposal concerning other employees also fail to implement first-best incentives. With suboptimal incentives to spend effort on inventions, the government's goal, an increase in the number of patents, is likely to be missed.

Keywords: Moral hazard; hold-up; efficient fixed wage (search for similar items in EconPapers)
JEL-codes: C72 J K (search for similar items in EconPapers)
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Related works:
Journal Article: Efficient compensation for employees' inventions (2006) Downloads
Working Paper: Efficient Compensation for Employees? Inventions (2003) Downloads
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