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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jebo.2006.05.016 Byline: Marie Thursby (a), Jerry Thursby (b), Swasti Gupta-Mukherjee (c) Keywords: No licensing versus licensing; Tenure system; Base model; Life cycle model Abstract: Do financial returns to licensing divert faculty from basic research? In a life cycle model in which faculty can conduct basic and/or applied research (the latter can be licensed) licensing increases applied relative to basic effort. However, leisure falls so basic research need not suffer. If applied effort also leads to publishable output, then research output and stock of knowledge are higher with licensing than without. In a tenure system licensing has a positive effect on research output unless license incentives are high. Overall results suggest a positive impact of tenure on research output over the life cycle. Author Affiliation: (a) College of Management, Georgia Institute of Technology and NBER, United States (b) Department of Economics, Emory University, United States (c) College of Management, Georgia Institute of Technology, United States Article History: Received 16 June 2005; Accepted 19 May 2006