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It is unclear why royalties are the dominant mode of payment in contracts over the trade of pre-commercial technology. We evaluate possible reasons for including royalties in a contract using a dataset of 645 contracts. This data shows systematic differences between the behaviour of university TTOs and private sellers even after controlling for attributes of the technology and trading partner. There is evidence that transaction costs influence the mode of payment but the presence of royalties is associated with more, not less, negotiation breakdown.

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