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Risk and vertical separation: the case of developing new technology

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  • Russell Thomson
  • Elizabeth Webster

Abstract

Vertical separation between research and development, called herein 'external development', is an increasingly important route to market for new technologies. In this paper we consider why firms sometimes prefer external to in-house development for their inventions, despite the costs of contracting and the risks of opportunistic behaviour and expropriation. We model the determinants of firms' choice of development pathway for their inventions using survey data from over 2,600 Australian inventions. Our results indicate that firms pursue collaborative development strategies in response to perceived project-level risk about the technical feasibility of the invention. Our findings also confirm that small to medium size enterprises; highly leveraged large firms; and firms with less experience patenting are more likely to pursue an external development strategy. Copyright 2013 Oxford University Press 2013 All rights reserved, Oxford University Press.

Suggested Citation

  • Russell Thomson & Elizabeth Webster, 2013. "Risk and vertical separation: the case of developing new technology," Oxford Economic Papers, Oxford University Press, vol. 65(3), pages 653-674, July.
    • Handle: RePEc:oup:oxecpp:v:65:y:2013:i:3:p:653-674
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    File URL: http://hdl.handle.net/10.1093/oep/gpt014
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    Citations

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    Cited by:

    1. Patrick Herbst & Uwe Walz, 2017. "The Design of Vertical R&D Collaborations," Economica, London School of Economics and Political Science, vol. 84(333), pages 54-77, January.
    2. Mihaela ȘTEȚ, 2013. "Financial Implications Of Technological Progress," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 1, pages 192-199, June.
    3. Willoughby, Kelvin W. & Mullina, Nadezhda, 2021. "Reverse innovation, international patenting and economic inertia: Constraints to appropriating the benefits of technological innovation," Technology in Society, Elsevier, vol. 67(C).
    4. repec:cmj:journl:y:2013:i:27:stetm is not listed on IDEAS
    5. Nemlioglu, Ilayda & Mallick, Sushanta K., 2020. "Do innovation-intensive firms mitigate their valuation uncertainty during bad times?," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 913-940.
    6. Nemlioglu, Ilayda & Mallick, Sushanta, 2021. "Effective innovation via better management of firms: The role of leverage in times of crisis," Research Policy, Elsevier, vol. 50(7).
    7. Kelvin W. Willoughby, 2020. "Endogenous innovation, outward-bound international patenting and national economic development," The Journal of Technology Transfer, Springer, vol. 45(3), pages 844-869, June.

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