Contracting in the self-reporting economy
By: Romana L. Autrey, Richard Sansing
Contributors: Sansing, Richard; Harvard Business School
Edition: 2nd rev. ed.
Series: Working paper / Harvard Business School -- 07-100; Working paper (Harvard Business School) -- 07-100.
Publisher: Harvard Business School
Published: 2010
Place of publication: [Boston]
Language: eng
Number of pages: 29
Description: This paper examines the effect of accounting on the use of intellectual property. We analyze the licensing of intellectual property in exchange for royalties that depend on the self-report of a licensee. Self-reporting gives rise to demand for auditing by the licensor or third-party attestation by the licensee. We characterize the optimal royalty contract, accounting system choice by the licensee, and audit strategy choice by the licensor. We show when the owner prefers to license the property in exchange for a royalty and when it prefers to use the property directly. We find that variable royalty arrangements that depend on either audited self-reports or third-party attestation become more attractive as accounting information system costs decrease and as the benefits from outsourcing the use of intellectual property increases. We also examine how the variability of payoffs to effort affects the optimal way the owner of the intellectual property uses it.
Notes: "June 2007, revised October 2009, January 2010"--Publisher's website.

Includes bibliographical references.