Efficient Compensation for Employees? Inventions.

We analyze the legal reform concerning employees? inventions in Germany. Using a simple principal-agent model, we derive a unique efficient payment scheme: a bonus which is contingent on the project value. We demonstrate that the old German law creates inefficient incentives. However, the new law concerning university employees and the pending reform proposal concerning other employees also fail to implement first-best incentives. With suboptimal incentives to spend effort on inventions, the government?s goal, an increase in the number of patents, is likely to be missed. (88 words) --Moral hazard,hold-up,efficient fixed wage

Evaluating public expenditures when governments must rely on distortionary taxation

Anderson and Martin provide simple, robust rules for evaluating public spending in distorted economies. Their analysis integrates, within a clean unified framework, previous treatments of project evaluation as special cases. In this paper, the authors use a general system of fiscal accounting for marginal changes in the provision of public that allows them to account for various approaches to the funding of government projects. They obtain two key results that seem likely to be useful for project evaluation. Firstly, the shadow prices of traded (as well as non-traded) goods are not generally equal to their world prices, but differ from world prices by an amount that depends upon the impact of the project on government revenues and on the Marginal Cost of Funds (MCF). Secondly, the costs of a government project need to be adjusted by the Marginal Cost of Funds before being compared with the benefits accruing from the project. The analysis leads to operational rules for project evaluation that are only slightly more complex than the border pricing rule. To conduct the analysis, the authors utilize a framework that makes explicit the role of government in providing public goods and services subject to a budget constraint. They consider first in Section 1 a general welfare analysis of the provision of a public good which is purchased from the rest of the world and paid for out of distortionary tax revenue. In Section 2 they consider the nature of the resulting shadow prices in more detail. In Section 3 the authors consider the role of the MCF in evaluating the cost of project inputs. Section 4 deals with user charges for public goods, which are of course only feasible when such goods are excludable. Section 5 places the results in the context of the earlier literature in order to clarify the relationship between their results and those obtained by earlier authors. Section 6 provides some simple numerical examples to highlight the potential importance allowing for the costs of raising funds.Public Sector Economics&Finance,Environmental Economics&Policies,Markets and Market Access,Economic Theory&Research,Banks&Banking Reform,Public Sector Economics&Finance,Access to Markets,Markets and Market Access,Economic Theory&Research,Environmental Economics&Policies

Efficient Compensation for Employees' Inventions: An Economic Analysis of a Legal Reform in Germany

The German law on employees' inventions requires employees to report to their employer any invention made in relation with the work contract. An employer claiming the right to the invention is obliged to pay a compensation to the employee. Up to now, this compensation is a matter of negotiations. A reform proposal seeks to introduce a combination of a fixed payment and a share of the project value. Regulations like this can also be found at U.S. universities. Up to now, German scholars enjoyed the privilege of not having to report their inventions to their universities. The new German law concerning inventions made by university scholars has abolished this privilege. Universities now have the right to claim the invention in exchange for a mandatory 30-percent share of the project value. Our model draws on Principal-Agent theory and combines elements of moral hazard and hold-up. We derive a unique efficient payment scheme that consists only of a lump-sum payment. We show that freedom to negotiate over the compensation after the invention has been done provides inefficient incentives. Efficient incentives would require the compensation to be fixed ex-ante, as it is provided by both the proposed law (concerning employees in general) and the new law (concerning university scholars). However, both set the payment schemes in an inefficient way. With suboptimal incentives to spend effort into inventions, the government's goal, an increase in the number of patents, is likely to be missed. -- Dieser Beitrag befaßt sich mit der geplanten und zum Teil schon verwirklichten Reform des Gesetzes über Arbeitnehmererfindungen (ArbEG). Im Mittelpunkt steht die bisher in der Literatur wenig beachtete Analyse der Anreize, die sich aus der Zahlung einer Vergütung durch den Arbeitgeber ergeben. Art und Höhe der Vergütung beeinflussen sowohl das Anstrengungsniveau des Arbeitnehmers bei der Erstellung, als auch das des Arbeitgebers bei der Verwertung der Erfindung. Unsere Analyse basiert auf einem einfachen Prinzipal-Agenten-Modell und verbindet Aspekte des Moral Hazard mit der Hold-Up-Problematik. Es werden zwei Szenarien vorgestellt, die sich bezüglich des Zeitpunktes und der Art der Festlegung der Vergütung unterscheiden. Es wird ein eindeutiges effizientes Ergebnis hergeleitet: Die Vergütung von Arbeitnehmererfindungen sollte sich auf die einmalige Zahlung einer festen Vergütung beschränken, die ex ante festzulegen ist. Gemessen an diesem Ergebnis kann die untersuchte Gesetzesnovelle nur als second best-Lösung eingeschätzt werden.Moral hazard,hold-up,efficient fixed wage