This paper applies and empirically tests a real options approach to conceptualizing the value of patents. Based on a theorem derived by Merton (1973), we propose that greater dispersion in the citations of a firm's patents represents greater flexibility for the firm to exercise the option rights...

This paper complements previous research on investment in firm-specific human capital by applying real options analysis. Our framework suggests that the parties receive valuable options to exit the contract when information becomes revealed in the future, but these options may be more valuable...