Full-Time Faculty or Part-Time Entrepreneurs

When agents originate and develop inventions, new discoveries, or scientific breakthroughs, do all residual cash flows go to principals - the risk bearers who own the infrastructures, systems, and the productive assets? This research addresses this question, focusing on university scientists who essentially bypass their institutions when they privately sell or license discoveries made at laboratories of said institutions directly to the market. Using a random sample of 54 U.S. universities and 23 394 faculty members, the study shows that bypassing activity is reduced when universities rely on autonomous technology licensing offices (TLOs) and when faculty departments receive greater shares of the royalties from the licensing of said discoveries. Conversely, bypassing activity is increased with more valuable discoveries and heightened entrepreneurial activities on university campuses.