Licensing of university innovations: The role of a technology transfer office
Reinhilde Veugelers, Department of Applied Economics, Katholieke Universiteit Leuven
This paper provides a theoretical model helping to explain the specific role a TTO may have in stimulating the transfer of know-how from the science base into commercial applications. Using an asymmetric information framework, where firms have incomplete information on the quality of inventions, it develops a reputation argument for the TTO to reduce the asymmetric information problem. Our results indicate that a TTO is often able to benefit from its capacity to pool the innovations across research units (and to build a reputation) within universities. This is the case when the total innovative activity of the university is large enough, but each research lab is not so large that it is able to build a reputation by itself. The TTO being able to pool innovations across research labs, will have an incentive to ``shelve'' some of the projects, thus raising the buyer's beliefs on expected quality, which results in less but more valuable innovations being sold at higher prices. However, when the stream of innovations of each research lab is too small and/or the university has just a few of them, the TTO will not have enough incentives to maintain a reputation. Our reputation model for a TTO is thus able to explain the importance of a critical size for the TTO in order to be successful as well as the stylized fact that TTOs may lead to less licensing agreements, but higher income from innovation transfers.