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German Working Papers in Law and Economics
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Volume 2004

AUTHOR:
Roland Kirstein and Birgit Will

TITLE:
Efficient Compensation for Employees’ Inventions

SUGGESTED CITATION:
Roland Kirstein and Birgit Will (2004) "Efficient Compensation for Employees’ Inventions", German Working Papers in Law and Economics: Vol. 2004: Article 2.
http://www.bepress.com/gwp/default/vol2004/iss1/art2


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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.




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