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Due diligence, research joint ventures, and incentives to innovate

Author

Listed:
  • Simona Fabrizi

    (School of Economics and Finance (Albany), Massey University)

  • Steffen Lippert

    (Department of Economics, University of Otago)

Abstract

The decision to cooperate within R&D joint ventures is often based on expert advice. Such advice typically originates in a due diligence process, which assesses the R&D joint venture's profitability, for example, by appraising the achievability of synergies. We show that if the experts who advise the owners considering forming an R&D joint venture are also responsible for R&D efforts, they can have incentives to withhold information about the extent of those synergies. Owners optimally react by reducing the incentives to innovate in low-value projects developed within R&D joint ventures and in high-value projects developed within competing research organizations.

Suggested Citation

  • Simona Fabrizi & Steffen Lippert, 2011. "Due diligence, research joint ventures, and incentives to innovate," Working Papers 1113, University of Otago, Department of Economics, revised Dec 2011.
    • Handle: RePEc:otg:wpaper:1113
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    File URL: http://www.otago.ac.nz/economics/research/otago076671.pdf
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    Cited by:

    1. Naoto Aoyama & Emilson C.D. Silva, 2017. "Asymmetric Innovation Agreements under Environmental Regulation," CESifo Working Paper Series 6782, CESifo.
    2. Naoto Aoyama & Emilson Caputo Delfino Silva, 2022. "Endogenous Abatement Technology Agreements under Environmental Regulation," Games, MDPI, vol. 13(2), pages 1-30, April.
    3. Falvey, Rod & Poyago-Theotoky, Joanna & Teerasuwannajak, Khemarat Talerngsri, 2013. "Coordination costs and research joint ventures," Economic Modelling, Elsevier, vol. 33(C), pages 965-976.

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    More about this item

    Keywords

    Research and development; due diligence; expert advice; joint venture; synergies; asymmetric information; moral hazard; information withholding (concealing) and revelation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • 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
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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