Abstract: Incentives and Innovation: Working Contracts of Researchers in Germany's High-Tech Industries, 1877-1913

Thorsten Lübbers


In this paper, we investigate the working contracts of researchers in Germany's high-tech industries (i.e. chemical and pharmaceutical industry as well as electrical engineering) during the Second Industrial Revolution. In particular, we examine if and in how far principal-agent problems between companies and their in-house researchers were mitigated by incentive-compatible payment schemes in these contracts. Thus, we focus on (i) the size of fixed salaries, (ii) the extent and structure of performance-related compensations offered by companies and realized by employees, (iii) the assessment base of performance-related compensations, (iv) the evolution of performance-based compensations over time, and (v) income differentials within and between companies. Furthermore, we attempt to get a grip on the effects of different payment schemes. The institutional framework of our investigation is set by the all-German patent law that was enacted in 1877 and, in contrast to the regulations in the United States, was not based on the principle of invention but on the principle of registration. As a result, companies could seek patents for inventions made by their in-house researchers in the company's name.