Heuristic Rules in the Field: Evidence from Royalty Shares in Scientific Teams

39 Pages Posted: 28 Aug 2014

See all articles by Reddi Kotha

Reddi Kotha

Singapore Management University - Lee Kong Chian School of Business, Management Department

Dan Lovallo

The University of Sydney

Date Written: August 28, 2014

Abstract

Using field data from a large U.S. technology transfer organization with over $50 million in annual revenue, we investigate four related issues regarding the sharing of licensing revenues by academic teams. First, we find that the main empirical regularity is a heuristic-based allocation of shares 1/n, equal shares to all unique inventors in a single invention team, and the use of the partition dependence (PD) rule, whereby inventors receive equal share within an invention and shares across inventions included in the same contract are equal. Second, when we examine the performance consequences of such equal sharing, we find it is negatively related to performance. Third, using both matched sample estimations and examining strategic switchers, i.e., the case of inventors who switch between equal and unequal sharing, we find that self-selection rather than shirking explains the negative performance. Finally, the pattern of their switching is random in time — i.e., there is no movement toward unequal rules over time so inventors are not learning to use unequal rules.

Keywords: incentive sharing, teams, heuristics

Suggested Citation

Kotha, Reddi and Lovallo, Dan, Heuristic Rules in the Field: Evidence from Royalty Shares in Scientific Teams (August 28, 2014). Available at SSRN: https://ssrn.com/abstract=2488423 or http://dx.doi.org/10.2139/ssrn.2488423

Reddi Kotha (Contact Author)

Singapore Management University - Lee Kong Chian School of Business, Management Department ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://www.business.smu.edu.sg/Faculty/management/reddikotha.asp

Dan Lovallo

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

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