Prof. Avraham (Avri) Ravid
Sy Syms Professor of Finance
Chair, Finance Department
Sy Syms School of Business
Intellectual Property Contracts: Theory and Evidence from Screenplay Sales
by Milton Harris, S. Abraham Ravid, Ronald Sverdlove, and Suman Basuroy
This paper presents a model of intellectual property contracts. We explain why many intellectual property contracts are contingent on eventual production or success, even without moral hazard on the part of risk-averse sellers. The explanation is based on differences of opinion between buyers and sellers, and reputation building through multiple transactions. Our model predicts that more reputable sellers will be offered a very different mix of cash and contingency payments than inexperienced sellers. We also discuss the probability of sales as a function of seller and product characteristics. The theoretical model is tested on a data base of screenplay contracts.