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A Dynamic Model of Research Contracting

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  • Joel Balbien
  • Louis L. Wilde

Abstract

This article analyzes the behavior of a single firm that is engaged in R&D for a "sponsor." We show that contractual forms that provide good incentives in a static environment may introduce incentive problems in a dynamic setting. More specifically, we show that a firm engaged in a sequence of R&D contracts is more likely to do research: (1) the lower are the costs of R&D, (2) the better is the state of sponsor knowledge, and (3) the longer is the sequence of contracts (given an appropriately high discount factor). We also show that the firm reveals a larger share of its results: (1) the better is the state of sponsor knowledge, (2) the better is the state of private knowledge possessed by the firm, and (3) the shorter is the sequence of contracts.

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  • Joel Balbien & Louis L. Wilde, 1982. "A Dynamic Model of Research Contracting," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 107-119, Spring.
    • Handle: RePEc:rje:bellje:v:13:y:1982:i:spring:p:107-119
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    Cited by:

    1. Tannista Banerjee & Ralph Siebert, 2013. "The Impact of R&D Cooperation on Drug Variety Offered on the Market: Evidence from the Pharmaceutical Industry," Auburn Economics Working Paper Series auwp2013-20, Department of Economics, Auburn University.
    2. Goldfarb, Brent, 2008. "The effect of government contracting on academic research: Does the source of funding affect scientific output," Research Policy, Elsevier, vol. 37(1), pages 41-58, February.

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