Patent licensing under strategic delegation

The modern corporation is characterized both by a separation of ownership from management and by managerial incentives that Often include strategic elements in addition to the standard incentive elements. Despite the importance of these two features in the agency and corporate-governance literatures, they are absent in the treatment of the firm in the patent-licensing literature. The analysis in this paper shows how, by simply taking into account these two features of the modern corporation, it is possible to offer a new explanation for the use of royalties in licensing agreements.