Contracting for an Innovation Under Bilateral Asymmetric Information

25 Pages Posted: 4 Jun 2010

See all articles by David Martimort

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Jean-Christophe Poudou

Université Montpellier I

Wilfried Sand-Zantman

University of Toulouse 1

Abstract

We analyze licensing contracts between informed innovators and developers exerting profit-increasing effort. Those contracts must simultaneously induce innovators to convey information on the value of their ideas, while inducing developers to exert effort and protecting the innovators' intellectual property rights. We show that the best innovators signal themselves by taking more royalties even if it reduces the developers' share of returns and their incentives. Moreover, royalties are more likely to be used when property rights are easy to enforce and pre-contractual evidence on innovation quality is hard to produce.

Suggested Citation

Martimort, David and Poudou, Jean-Christophe and Sand-Zantman, Wilfried, Contracting for an Innovation Under Bilateral Asymmetric Information. The Journal of Industrial Economics, Vol. 58, Issue 2, pp. 324-348, June 2010. Available at SSRN: https://ssrn.com/abstract=1615807 or http://dx.doi.org/10.1111/j.1467-6451.2010.00421.x

David Martimort (Contact Author)

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 5 6112 8614 (Phone)
+33 5 6112 8637 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Jean-Christophe Poudou

Université Montpellier I ( email )

Avenue de la Mer Site Richter
163 Rue Auguste Broussonnet
Montpellier, Cedex 2 34090
France

Wilfried Sand-Zantman

University of Toulouse 1 ( email )

Place Anatole France
Toulouse Cedex, F-31042
France

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