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Incentives and invention in universities


  • We are very grateful to the editor Philip Haile and to two anonymous referees for extremely helpful suggestions, and to Jim Adams, Bronwyn Hall, Adam Jaffe, Jenny Lanjouw, Imran Rasul, Len Waverman, and Arvids Ziedonis for comments on earlier drafts of the article. We thank Manuel Trajtenberg for making available the university patent data, and Don Siegel for help with the AUTM data. We also benefited from seminar participants at Harvard University, The Hebrew University, London School of Economics, San Francisco Federal Reserve Bank, University of Chicago Graduate School of Business, Ludwig Maximillian University of Munich, and the NBER. Alan Paau, director of the Technology Licensing Office at UCSD, provided very helpful suggestions on the design of the TLO survey. Finally, we gratefully acknowledge financial support from the Samuel Neaman Institute for Advanced Studies in Science and Technology Policy at the Technion (Israel).


We show that universities in the United States that provide stronger royalty incentives to faculty scientists generate greater license income, controlling for university characteristics. We use pre-sample data on university patenting to control for the potential endogeneity of royalty shares. Faculty responds to royalties both in the form of cash and research lab support, indicating both pecuniary and intrinsic research motivations. The impact of incentives is larger in private than in public universities, and we provide new survey evidence on the organization and objectives of university licensing offices to explain this difference. Royalty incentives work both by raising faculty effort and sorting scientists across universities. The primary impact of incentives is to increase the quality rather than the quantity of inventions.