R&D Outsourcing Contract with Information Leakage

Shirley Ho ()

No 2007026, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: This paper studies an R&D outsourcing contract between a firm and a contractor, considereing the possibility that in the interim stage, the contractor might sell the innovation to the rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.

Keywords: R&D outsourcing; Contract; Information leakage; Collusion; Multiple agents (search for similar items in EconPapers)
JEL-codes: D82 Z (search for similar items in EconPapers)
Pages: 31
Date: 2007-09-01
New Economics Papers: this item is included in nep-com, nep-ino and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2007026

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