Licensing of university inventions: The role of a technology transfer office

Abstract

We develop a theoretical model to explain the specific role of Technology Transfer Offices (TTOs) in licensing university inventions. Using a framework where firms have incomplete information on the quality of inventions, we develop 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 innovations across research units (and to build a reputation) within universities. We identify when the technology seller will have an incentive to “shelve” some of the projects, thus raising the buyer's beliefs on expected quality; this results in fewer but more valuable innovations being sold at higher prices. We explain the importance of a critical size for the TTO to be successful as well as the stylized fact that TTOs may lead to fewer licensing agreements but higher income from innovation transfers.