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Gal Hochman, Gordon C. Rausser and David Zilberman

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Gordon Rausser, Holly Amedon and Reid Stevens

As funding for universities and governmental research units has declined, these institutions have turned to the private sector to augment their research and development budgets. This book presents a framework for structuring public-private research partnerships that protect both these institutions’ academic freedom and the private firm’s corporate interests. This formulation is developed using insights originating from the incomplete contracting and collective decision making literatures. The book presents a number of template designs for a variety of research partnerships.
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Gordon Rausser, Holly Amedon and Reid Stevens

Despite fostering US productivity growth, public sector contributions to university research budgets have steadily declined over the last few decades. As a result, the need to actively seek alternative sources of funding has become increasingly imperative. Private industry frequently offers a viable alternative, now accounting for over 70 percent of national research and development budgets, not only because of its financial resources but because of the dramatic synergies of knowledge assets that arise from successful alliances with universities. Fostering the formation of public–private research partnerships (PPRPs), legislation emerging from the US Senate in the form of the Bayh–Dole Act granted patent rights from federally funded research to universities and small businesses. This legislation created incentives for universities to select areas of research that are likely to result in commercially valuable innovations. The task of PPRP formation is complex and delicate, with many contentious issues arising such as conflict of public and private interests, setting research priorities, ownership and access to intellectual property, and academic researcher publication delays. At the center of the PPRP controversy is the absence of a framework for structuring research agreements and for assessing the inherent merit of such contracts. We present a four-stage framework for analyzing the structure of contracts for PPRPs, recognizing that the essence of PPRPs is a set of “control rights” rooted in incomplete contracting and financial control rights theory. Our framework shows how control rights can be effectively identified, valued, and allotted between research partners.

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The scientific research process

Empowering University Partners

Gordon Rausser, Holly Amedon and Reid Stevens

We evaluate two competing paradigms for modeling the scientific research process: the linear decomposition paradigm and the non-linear, chaotic, feedback research paradigm. The assessment of research paradigms is not simply an academic exercise, as each paradigm has important implications for universities contemplating public–private research partnerships. The two alternative paradigms have direct implications for whether public or private goods emerge from the research and development process.

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Gordon Rausser, Holly Amedon and Reid Stevens

The relationships between public and private research and development investments are investigated. The literature on joint efforts by university researchers and private firms to commercialize academic research is assessed, distinguishing the core elements of research orientation, research productivity, and value creation.

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Gordon Rausser, Holly Amedon and Reid Stevens

We explore whether private funding crowds-in or crowds-out public good research for each of two major paradigms. We emphasize the critical roles of bargaining that must necessarily take place in establishing public–private joint ventures as well as the incentives among the two agents: research administrators and private industry representatives. In addition to private sector incentives, a governance structure is specified for university research administrators. Both static and dynamic representations are developed. Crowding-in and/or crowding-out is shown to depend critically on the bargaining structure between these two parties.

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Gordon Rausser, Holly Amedon and Reid Stevens

In this chapter, we pivot from abstract models to knowledge creation and the research and development process. We present a framework for knowledge assets, how the Bayh–Dole Act affected intellectual property rights, the markets for science and technology, how to capture value from knowledge assets, and the relationship between intellectual property and market structure. Both the theoretical and empirical literatures on the knowledge generation process are shown to have important implications for public–private research partnerships.

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PPRPs: The benefits and risks of the bargain

Empowering University Partners

Gordon Rausser, Holly Amedon and Reid Stevens

Here we examine real-world examples of public–private research partnerships (PPRPs), assessing a few notable case studies such as Washington University–Monsanto and Berkeley–Novartis. Over the last 30 years, the private sector has funneled hundreds of millions of dollars into university research through PPRPs, and we review the basic terms and conditions of such contractual commitments including partner selection, governance, publication delay, academic freedom, confidentiality, and patents and licensing. We also present guidelines that universities have developed to manage these partnerships, evaluating consistency across these guidelines.

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Gordon Rausser, Holly Amedon and Reid Stevens

In this chapter, we advance a collective choice framework to interpret the selection and implementation of public–private research partnerships in the face of conflicts between private self-interest and the public interest. We isolate the political, economic, and ideological forces that emerge in the strategic interactions among the partners. This allows us to formally demonstrate the crucial role that the assignment of authority, control, or decision rights plays in the collective choice arising from PPRPs. The political power captured by each of the partners may be one of the motives for individuals or firms to join a PPRP. Quite simply, they will join the PPRP if the benefit from doing so exceeds the cost involved in the process. Other major reasons to form a PPRP may be symbolic social incentives and a commitment to collaborations that engage different types of intellectual capital.

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Incomplete contracts and control premiums

Empowering University Partners

Gordon Rausser, Holly Amedon and Reid Stevens

Here we present the key insights from the finance literature on incomplete contracts and control premiums, or decision rights, in the generation of private and public goods that emerge from the research and development process. A contract is incomplete if there is a set of events that can influence the partnership that has not been anticipated and addressed in the initial contract. The allocation of control rights through a public–private partnership (PPRP) contract can determine whether a partnership achieves efficiency as well as an equitable distribution of partnership benefits. We present the optimal allocation of control rights among the parties and review both theoretical and empirical literature on incomplete contracting. This literature supports the notion that control rights are a crucial issue in public–private research agreements and that the balance of these rights should be tied to the valuation, and hence overall objectives, of the PPRP.