Patrick W. Schmitz
Economics Letters, Vol. 117 (3), 2012, 841–843.
Abstract. An inventor can invest research effort to come up with an innovation. Once an innovation is made, a contract is negotiated and unobservable effort must be exerted to develop a product. In the absence of liability constraints, the inventor`s investment incentives are increasing in his bargaining power. Yet, given limited liability, overinvestments may occur and the inventor`s investment incentives may be decreasing in his bargaining power.
The working paper version is available for download (CEPR Discussion Paper 9050).
The paper is available for download.