Economic Evaluation of Remuneration from Patents and Technology Transfers

THE INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS, Vol. 4, No. 2

Posted: 15 Jan 1997

See all articles by Dan Galai

Dan Galai

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Yael Ilan

Hebrew University of Jerusalem

Abstract

One of the more critical and complex issues to be resolved between a would-be supplier (licensor) and recipient (licensee) of technological know-how is the determination of a fair transaction price. The price should reflect a number of factors, including the risk and return associated with the outcome of the technology. The model presented in this paper was derived for a discrete, one-period time frame. The model can be extended to a multi-period case. Since the qualitative results remain the same, we decided to focus on the one- period model. The model can also be extended to the case of the licensee's going bankrupt. Another extension is to allow both prices and quantities of the product to be stochastic. If prices and quantities reflect a constant elasticity of demand function, the analytical formulation can still be preserved. The incentives to select a specific royalty scheme will be a function of the elasticity of demand. We may expect to find different payment schedules for different products based on their elasticity of demand.

JEL Classification: O31, O32

Suggested Citation

Galai, Dan and Ilan, Yael, Economic Evaluation of Remuneration from Patents and Technology Transfers. THE INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS, Vol. 4, No. 2. Available at SSRN: https://ssrn.com/abstract=4558

Dan Galai (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 5883235 (Phone)
972 2 5881341 (Fax)

Yael Ilan

Hebrew University of Jerusalem

Mount Scopus
Jerusalem 91905, IL Jerusalem 91905
Israel

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