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Controlling innovative projects with moral hazard and asymmetric information

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  • Bergmann, Rouven
  • Friedl, Gunther

Abstract

We study optimal incentive contracts offered to a research and development (R&D) manager, who can propose an innovative project and is in charge of conducting this project. The manager has private information about the project profitability and he exerts unobservable levels of different kinds of effort in order to increase the feasibility of successfully completing the project in terms of meeting product specifications. In particular, we analyze a situation, in which two interrelated performance measures on different hierarchical levels are available for contracting purposes. We show how asymmetric information about the project and further characteristics of the project influence the weights of the performance measures. We also make a number of empirical predictions about the composition of compensation contracts for R&D managers.

Suggested Citation

  • Bergmann, Rouven & Friedl, Gunther, 2008. "Controlling innovative projects with moral hazard and asymmetric information," Research Policy, Elsevier, vol. 37(9), pages 1504-1514, October.
    • Handle: RePEc:eee:respol:v:37:y:2008:i:9:p:1504-1514
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    Cited by:

    1. Duncan Simester & Juanjuan Zhang, 2014. "Why Do Salespeople Spend So Much Time Lobbying for Low Prices?," Marketing Science, INFORMS, vol. 33(6), pages 796-808, November.
    2. Evans, Shane, 2010. "Innovation contracts with leakage through licensing," Working Papers 10282, University of Tasmania, Tasmanian School of Business and Economics, revised 05 Oct 2010.
    3. Duncan Simester & Juanjuan Zhang, 2010. "Why Are Bad Products So Hard to Kill?," Management Science, INFORMS, vol. 56(7), pages 1161-1179, July.
    4. Chien-Chi Chu & Kung-Cheng Ho & Chia-Chun Lo & Andreas Karathanasopoulos & I-Ming Jiang, 2019. "Information disclosure, transparency ranking system and firms’ value deviation: evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 53(3), pages 721-747, October.
    5. Zhihua Chen & Yanfei Lan & Ruiqing Zhao, 2018. "Impacts of risk attitude and outside option on compensation contracts under different information structures," Fuzzy Optimization and Decision Making, Springer, vol. 17(1), pages 13-47, March.
    6. Yu, Xinning & Lan, Yanfei & Zhao, Ruiqing, 2018. "Cooperation royalty contract design in research and development alliances: Help vs. knowledge-sharing," European Journal of Operational Research, Elsevier, vol. 268(2), pages 740-754.
    7. (Ryan) Choi, Ji-Hung & Yoon, Jiho & Song, Ju Myung, 2023. "Adaptive R&D contract for urgently needed drugs: Lessons from COVID-19 vaccine development," Omega, Elsevier, vol. 114(C).
    8. Shuto Miyashita & Shogo Katoh & Tomohiro Anzai & Shintaro Sengoku, 2020. "Intellectual Property Management in Publicly Funded R&D Program and Projects: Optimizing Principal–Agent Relationship through Transdisciplinary Approach," Sustainability, MDPI, vol. 12(23), pages 1-17, November.
    9. Yu, Xinning & Lan, Yanfei & Zhao, Ruiqing, 2021. "Strategic green technology innovation in a two-stage alliance: Vertical collaboration or co-development?," Omega, Elsevier, vol. 98(C).
    10. Ji‐Hung Choi & Hannah Oh & John Bae & Sang‐Joon Kim, 2021. "Affirmative action and team performance: An agency theoretic perspective," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1183-1193, July.

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