Signaling and Diverse Intellectual Property Rights on R&D

We use a signaling game to evaluate the incentives that affect an inventor's decision whether to work in a firm's lab or establish a start-up. The model predicts that in a "free market", in a high payoff project and in the firm's lab, the inventor's compensation will be a proportion of the prevailing (non-invention) market wage. We characterize the condition, when, despite the productivity reduction, a start-up increases the inventor's expected compensation. This platform is used to compare the effect of different intellectual rights legal systems on innovation, especially the difference between the U.S. and the German/Japanese approaches