Contracting over Uncertain Property Rights: Evidence from R&D Consortium Contracts

Abstract

How do parties support exchange in environments in which property rights are uncertain? This question would not arise but for problems of incomplete contracting. Uncertain property rights are not cognizable in formal theories of incomplete contracting, and, yet, uncertain property rights can contribute to contractual incompleteness and can motivate the ways contracting parties accommodate incompleteness. Among other things, uncertain property rights complicate the design of technology licensing agreements, and they may enable both owners of intellectual property and prospective licensees to game legalistic processes. In this paper we examine how parties to collaborative R&D relieve agency hazards that derive from the incompleteness of contracts. I identify a rent-seeking problem and appropriability hazards that pertain both to the licensing of intellectual property R&D partners contribute to collaborative efforts and to the licensing of intellectual property R&D partners generate through collaboration. I characterize a trade-off that R&D partners face between instituting remedies to the appropriability problem and mitigating the legalistic gamesmanship that those same remedies enable. I substantiate the trade-off with survival analysis of the duration of disclosure restrictions featured in 142 R&D consortium contracts.