Incentives and Invention in Universities

We show that economic incentives affect the number and commercial value of inventions generated in universities. Using panel data for 102 U.S. universities during the period 1991-1999, we find that universities which give higher royalty shares to academic scientists generate more inventions and higher license income, controlling for other factors including university size, quality, research funding and technology licensing inputs. The incentive effects are much larger in private universities than in public ones. For private institutions there is a Laffer curve effect: raising the inventor's royalty share increases the license income retained by the university. The incentive effect appears to work both through the level of effort and sorting of academic scientists