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Control and contract design in research collaborations: A complete contract perspective

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  • Panico, Claudio

Abstract

Incumbent firms, especially in high-tech industries, often contract and collaborate with small research units on single projects. A delicate resulting contracting decision thus is how to allocate control. This paper considers the incumbent's problem to design a research contract that specifies: the allocation of control; the unit's research input, and its monetary compensation. Contracting is complicated by the unit's private information about its technological skills; research outputs also are not verifiable. Control affects the distribution of the private benefits from research and can be shared. From a complete contract perspective, an allocation of control that is contingent on the unit's reported information provides the incumbent an additional instrument for designing the incentives. Control can generate countervailing incentives and mitigate the limitations of contracts in research environments, to the point of extracting the full surplus. The analysis further clarifies when control is centralized by the incumbent, when it is shared between the parties, and when it is delegated to the unit.

Suggested Citation

  • Panico, Claudio, 2012. "Control and contract design in research collaborations: A complete contract perspective," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 459-470.
    • Handle: RePEc:eee:indorg:v:30:y:2012:i:5:p:459-470
    DOI: 10.1016/j.ijindorg.2012.03.001
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    Cited by:

    1. Alfonso Gambardella & Claudio Panico & Giovanni Valentini, 2015. "Strategic incentives to human capital," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 37-52, January.
    2. Gambardella, Alfonso & Panico, Claudio, 2014. "On the management of open innovation," Research Policy, Elsevier, vol. 43(5), pages 903-913.
    3. Liu, Jiaqi & Liu, Jicai & Liu, Nana, 2020. "Government ’s control rights influence investor’s escalation of commitment in PPP project: Regulating effect of other-face concern," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 545(C).

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    More about this item

    Keywords

    Research collaborations; Contracts; Control; Adverse selection; Countervailing incentives;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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