Outsourcing, Contracts and Innovation Networks

Gianmarco Ottaviano and Alireza Naghavi

No 5681, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the decision of firms between vertical integration and outsourcing in a dynamic setting with product innovation. In so doing, we model an industry in which R&D is performed by independent research labs and outsourcing production requires complementary upstream and downstream inventions. In the presence of search friction and incomplete outsourcing contracts, we show that the ex-post bargaining power of upstream and downstream parties at the production stage feeds back to R&D incentives, thus affecting the emergence and the performance of labs specialized in complementary inventions.

Keywords: Innovation; Incomplete contracts; Outsourcing (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-cse, nep-ino and nep-mic
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Citations: View citations in EconPapers (4)

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