Abstract
This paper seeks to explain the use of royalty payments rather than fixed fees in the licensing of patents by the presence of asymmetric information. The licensee is assumed to know the value of the patent and makes a single offer of a contract to the licensor It is shown that there is a unique equillibrium satisfying Cho and Kreps' intuitive criterion Qualitative properties of the equilibrium contract are derived by considering a continuum of types
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