Heuristic rules in the field: Evidence from royalty shares in scientific teams

• Main Authors: KOTHA, Reddi, LOVALLO, Dan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: incentive sharing; teams; heuristics; Labor Relations; Management Sciences and Quantitative Methods
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research_all/12; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1017&context=lkcsb_research_all
• Institution: Singapore Management University

Using field data from a large U.S. technology transfer organization with over $50 million in annual revenue, we investigate four related issues regarding the sharing of licensing revenues by academic teams. First, we find that the main empirical regularity is a heuristic-based allocation of shares 1/n, equal shares to all unique inventors in a single invention team, and the use of the partition dependence (PD) rule, whereby inventors receive equal share within an invention and shares across inventions included in the same contract are equal. Second, when we examine the performance consequences of such equal sharing, we find it is negatively related to performance. Third, using both matched sample estimations and examining strategic switchers, i.e., the case of inventors who switch between equal and unequal sharing, we find that self-selection rather than shirking explains the negative performance. Finally, the pattern of their switching is random in time — i.e., there is no movement toward unequal rules over time so inventors are not learning to use unequal rules.