Entrepreneurship and University Licensing

Outside invention has gained in importance as universities are actively seeking commercialization of their inventions since the passage of the Bayh-Dole Act. The paper analyzes the incentives to invent for outside and inside inventors. It is shown that outside inventors have greater incentives to invent than incumbents. Outside inventors can always fully appropriate the gains from invention irrespective of market structures and firm behaviour. Moreover, outside invention prompts incumbents to commercialize an invention in contrast to inside invention. Embryonic inventions could best be commercialized by new enterprises due to the uncertainty of their outcomes. Cooperative invention could boost consumer welfare but constitutes a lackluster incentive to invent.