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Transboundary pollution poses a major threat to environment and human health. An effective approach to addressing this problem is the adoption of long-term abatement technology; however, many developing regions are lacking in related technologies that can be acquired by licensing from developed regions. This study focuses on a differential game model of transboundary pollution between two asymmetric regions, one of which possesses advanced abatement technology that can reduce the abatement cost and licenses this technology to the other region by royalty or fixed-fee licensing. We characterize the equilibrium decisions in the regions and find that fixed-fee licensing is superior to royalty licensing from the viewpoint of both regions. The reason is that under fixed-fee licensing, the regions can gain improved incremental revenues and incur reduced environmental damage. Subsequently, we analyze the steady-state equilibrium behaviors and the effects of parameters on the licensing performance. The analysis indicates that the myopic view of the regions leads to short-term revenue maximization, resulting in an increase in total pollution stock. Moreover, a high level of abatement technology or emission tax prompts the licensee region to choose fixed-fee approach, which is beneficial both economically and environmentally for two regions.

We introduce a game-theoretic analysis for a supply chain of subscription-based apps consisting of a platform and a developer. The demand distribution is common knowledge, but only the platform can substantially reduce the demand uncertainty. The platform then decides whether or not to disclose this information to the developer. Two types of consignment contract are investigated, based on the commission fee charged by the platform: fixed fee and commission rate. For each contract type, we examine two scenarios regarding the platform’s information status: hidden superiority and known superiority. We show that, regardless of the contract type, under hidden superiority, the platform should disclose its private information only when the demand forecast is pessimistic, whereas under known superiority, the platform should always disclose it. We further show that: (a) it is more beneficial for the platform to interact via the fixed-fee contract than via the commission-rate contract, whereas from the developer and the supply-chain perspectives, neither model dominates; (b) the quality and price of the subscription are higher under the fixed-fee contract than under the commission-rate contract; and (c) the greater the demand volatility, the higher the expected profits of the platform and the developer, as well as the quality and selling price of the subscription app.

We develop a model based on asymmetric information (adverse selection) that provides a rational explanation for the persistent use of royalties alongside equity in university technology transfer. The model shows how royalties, through their value-destroying distortions, can act as a screening tool that allows a less-informed principal, such as the university’s Technology Transfer Office (TTO), to elicit private information from the more informed spin-off. We also show that equity–royalty contracts outperform fixed-fee–royalty contracts because they cause fewer value-destroying distortions. Furthermore, we show that our main result is robust to problems of moral hazard. Beside the coexistence result, the model also offers explanations for the empirical findings that equity generates higher returns than royalty and that TTOs willing to take equity in lieu of fixed fees are more successful in creating spin-offs. This paper was accepted by David Hsu, entrepreneurship and innovation.

The format of pricing contracts varies substantially across business contexts, a major variable being whether a contract imposes a fixed fee payment. This paper examines how the use of the fixed fee in pricing contracts affects market outcomes of a manufacturer-retailer channel. Standard economic theories predict that channel efficiency increases with the introduction of the fixed fee and is invariant to its framing. We conduct a laboratory experiment to test these predictions. Surprisingly, the introduction of the fixed fee fails to increase channel efficiency. Moreover, the framing of the fixed fee does make a difference: an opaque frame as quantity discounts achieves higher channel efficiency than a salient frame as a two-part tariff, although these two contractual formats are theoretically equivalent. To account for these anomalies, we generalize the standard economic model by allowing the retailer's utilities to be reference dependent so that the up-front fixed fee payment is perceived as a loss and the subsequent retail profits as a gain. We embed this reference-dependent utility function in a quantal response equilibrium framework where the retailer is allowed to make decision mistakes due to computational complexity. The key prediction of this behavioral model is that channel efficiency decreases with loss aversion for sufficiently Nash-rational retailers. Consistent with this prediction, the estimated loss-aversion coefficient is 1.37 in the two-part tariff condition, significantly higher than 1.27 in the quantity discount condition. At the same time, loss aversion dominates contract complexity in explaining the data. Lastly, we conduct a follow-up experiment to confirm the central role of loss aversion as a behavioral driver. In one condition, the retailer becomes less loss averse when we temporally compress the fixed fee payment and the realization of retail profits, which supports the loss aversion theory. In the other condition, the retailer's contract acceptance rate does not decline when we reward the manufacturer a higher cash payment for each experimental point earned, which rules out the competing hypothesis that the retailer rejects contract offers due to fairness concerns.

Technology sharing among farmers has become common but controversial in recent years. To address it, we consider two farmers engaged in Cournot competition to investigate motivations of technology sharing and provide suggestions on contract design. One farmer (a licensor) has developed some technology and decides whether to share technology with the other farmer (a licensee). The licensee chooses whether to buy technology under a fixed-rate contract or a royalty-fee contract. We propose a technology sharing ratio between two farmers to characterize the degree of technology sharing. We find a win–win outcome for both farmers when the technology sharing ratio is higher than a threshold under the fixed-fee contract. While under the royalty-fee contract, the licensor only shares technology with an additional constraint that they have similar production costs. When the licensor can design contracts, he prefers the royalty-fee contract to the fixed-fee contract. We further interpret why the licensor may not benefit more under the two-part tariff contract than the fixed-fee or the royalty-fee contract. Moreover, we find that in supply chain settings, a win–win outcome for both farmers exists if and only if the technology sharing ratio is smaller than a threshold under the fixed-fee contract while technology sharing will not be realized under the royalty-fee contract. Finally, we show that the strategy of whether to share technology is robust to yield uncertainty, and both the licensor and licensee may benefit more from technology sharing because of yield uncertainty.

The knowledge economy has put the triple helix cooperation at the heart of economic growth. In this current paradigm, innovation is vital to firm survival, and universities are seen as an undeniable source of new ideas, talents and ventures. The optimal payment scheme for technology licensing be it from a licensee or licensor point of view is an ongoing debate. Researchers have disputed the advantage of fixed fees versus royalty for both parties involved and the benefits of entering the market for an outsider. A recurrent concern in the literature is the lack of empirical evidence to support these claims. Furthermore, while a plethora of studies defend the superiority of fixed fees over royalty, royalty payments still constitute a major part of licensing income for universities and licensor companies alike. Hence, there is a disconnect between the theoretical optimal payment scheme and the payment scheme adopted by companies and universities. We develop a framework to explain the source of this discrepancy. Using the AUTM STATT database, we analyse the effect of company size on the payment type. Our empirical results show that fixed fees are associated with licenses to large companies while royalty is associated with licenses to small companies. Startups pay neither and give equity instead of payment. Our results point to the importance of government intervention to level the field for different company types, and achieve successful university-industry cooperation and knowledge transfer.

Flat (or fixed) attorney fees, despite their popularity, have been rarely studied by theorists and empiricists. This article builds informal theoretical models to describe the incentive schemes of rational attorneys and rational litigants. Rational attorneys who collect flat fees in advance will work sufficiently hard on the cases at hand only to keep their reputation, and will decline representation less frequently than contingent-fee attorneys. Rational litigants would seek representation and select flat-fee attorneys mainly based on how well an attorney can increase the probability of winning. We create three unique survey data sets: one on attorneys with 834 observations; one on litigants with 2705 observations; and one on 1224 randomly selected adults—all in Taiwan. Empirical analyses of these data reveal that flat-fee attorneys in Taiwan turned down about 10% of potential clients, mainly because of low expected win rates. Such attorneys attract clients largely based on their reputation. Inexperienced litigants rely on their social network for information and attorney referrals. As litigants gain experience, they are more inclined to focus on factors that are more likely to maximize their net private benefits.

Abstract This article departs from existing literature by including licensing in a multinational market where the innovator is the Stackelberg leader. When the domestic mixed-ownership firm is the leading innovator, it focuses on local social welfare. Thus, the royalty it charges becomes a function of level privatization. As the private share in the domestic firm increases, the leader increases the royalty it charges. The relationship is reversed when the foreign firm becomes the innovator. The optimal licensing policy is a mix of a fixed fee and a royalty, with a difference that a Stackelberg leader charges more than a Cournot competitor.

Technology innovators are faced with the question of whether to license an innovation to other firms, and if so, what type of license it should use. This question takes on paramount importance with information technology innovations that lead to new products and services that exhibit network effects. This paper explores the impact of network effects on the licensing choice. The literature suggests that without network effects, a royalty license is preferred by producer-innovators. We find that a fixed-fee license is optimal with strong network effects. For less intense network effects, the optimal license uses a royalty rate, either alone or in combination with a fee. We further derive the terms of the optimal license and discuss the impact of the investment needed to replicate the innovation and the size of the potential market. Our results provide insights for licensing decisions in industries that exhibit network effects.

It is commonly believed that licensing of cost reducing technology increases welfare. We show that technology licensing by an outside innovator may reduce welfare when the technology is not useful for all final goods producers. Technology licensing reduces welfare if cost reduction by the licensed technology is small and the initial cost difference of the final goods producers is large. A higher intensity of competition, either due to lower product differentiation or due to Bertrand competition instead of Cournot competition, increases the possibility of welfare reducing licensing.