Incentives matter: university file

From a column at VoxEU.org.

In the early 2000s several European countries passed new laws that ended the ‘professor’s privilege’, under which university researchers had enjoyed full rights to their innovations. This column shows that the reform in Norway was followed by a 50% decrease in both startup and patenting activity by university researchers. Measures of startup and patenting quality also declined. The reform, which sought to spur university-based innovation, appears to have had the opposite effect.

Anyone thinking in terms of incentives may well have argued that taking ownership rights away from the researchers would result in a reduction in effort and thus in startups and patents. But the size of the reduction, I think, would come as a surprise.

The column makes the point that,

A theoretical perspective that may explain the findings emphasises the problem of university researcher incentives, and how these can be balanced with any rights given to the university itself. How to balance ownership rights between investing parties is a classic question in economics and also provides canonical perspectives in studies of innovation [...]. The ‘professor’s privilege’ reform is a large shock to the rights regime. Recognising the potential importance of investments by both the university researcher and the university itself, one can motivate a royalty sharing regime that favours balancing rights across parties rather than giving all royalties to one party, as under the professor’s privilege. The basic presumption here is that university-level investments are important and cannot be easily replicated by the university researcher. However, under circumstances where the university-level investments are much less important than researcher-level investments, royalty shares would be optimally balanced toward the university researcher.

In short, when human capital matters giving ownership rights to that capital can make sense.