Licensing Contracts: Control Rights, Options and Timing

Research and development (RD the innovator may, under certain conditions, prefer to grant launch control rights or buyout options to the marketer despite the fact that both terms restrict its downstream actions. We demonstrate that a menu of contracts is not necessary to address the adverse selection problem because the menu can be replicated by a single option contract. We show that timing, through renegotiation or delayed contracting, as well as the careful allocation of control rights and options can have a significant influence on the value of collaborative R&D. We provide recommendations on the optimal contract structure and timing based on two project char...