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Spurring University Tech Commercialization through Incentives

June 06, 2003

Since her inauguration in January, Arizona Governor Janet Napolitano has pushed legislation intended to increase university tech transfer and commercialization (see related item in this issue). But will it work? Do economic incentives really encourage university researchers to pursue commercialization goals? Or are academics "pure" scientists, truly beyond monetary motives as many would argue?

A new econometric model that looked at the tech transfer policies of 102 U.S. research universities and their licensing/royalty incomes during the 1990s finds that, yes, even academic researchers have their price. Economic incentives, such as royalty sharing arrangements, do affect the number of inventions produced and the licensing income generated by universities, according to Incentives and Invention in Universities. The recent National Bureau of Economic Research Working Paper by Saul Lach and Mark Schankerman posits that, controlling for other factors such as institution size, quality, research funding and technology licensing inputs, universities that provide higher royalty shares to researchers trigger more inventions and higher license incomes.

The 102 universities in Lach and Schankerman's data set averaged 67 invention disclosures per year between 1991-1999, with a mean annual license income per disclosure of $43,000.

With the potential for greater income and economic growth resulting from university tech commercialization, it is vital to recognize what moves academic research and technology licensing activity forward, argue Lach and Schankerman. Their model suggests economic growth and productivity can be affected through the structure of intellectual property rights and other incentives at the university level.

The model also finds researchers in private universities are four times more responsive to incentives than their counterparts in public institutions, so much so that private schools enjoy greater licensing revenues as well (producing a "Laffer effect" in stats jargon).

Overall, "increasing the inventor's royalty share by 10 percentage points results in a 14 percent increase in revenues," the authors write. Separating public and private schools, however, implies "a 10 percentage point increase in royalty share would increase the number of disclosures by about 13 percent and the license income by 57 percent in private institutions."

Explaining why private university researchers outperform public university faculty by this measure was beyond the scope of the paper, the authors point out. They offer that organizational structure and objectives vary greatly among universities. Lach and Schankerman also report the findings suggest technology licensing offices (TLOs) in private institutions "have more effective, commercially-oriented technology transfer activity so that their TLOs are better able to identify and capture innovation rents by licensing to industry."

[SSTI's two cents: Ensuring public universities have the same tools available to encourage innovation and commercialization as private schools – tools not present in most states until the 1990s and still not available in many – helps level the opportunity for success. In Arizona's case, constitutionally giving state universities the chance to benefit financially from the commercialization of academic research would be a step in the right direction.]

Incentives and Invention in Universities is available at: http://economics.huji.ac.il/facultye/saul/LachScahnkerman.pdf