Payment schemes in technology licensing agreements: A transaction cost approach. Working Paper: Université de Paris 1

This article provides a theoretical framework and an empirical assessment of payment schemes implemented in technology licensing agreements. Using a new source of data (a French governmental database designed to observe international technology transfers) we show that results obtained by previous studies focusing on incentive constraints are no longer valid when crucial ex post enforcement problems are taken into account. The choice of royalties vs. lump sum payments depends upon the quality of the protection provided to the licensor by the institutional environment. These results highlight the need to include the impact of the institutional environment in the analysis of contractual choices as a factor that greatly influences the level of ex post enforcement costs