Author(s):	Patrick W. Schmitz
Publication Date:	March 2007
Keyword(s):	Innovation, Licences, Monopoly, Private information
JEL(s):	D45, D82, L12
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=6207

An upstream firm can license its innovation to downstream firms that have to exert further development effort. There are situations in which more licenses are sold if effort is a hidden action. Moral hazard may thus increase the probability that the product will be developed.