Control and contract design in research collaborations: A complete contract perspective

Claudio Panico

International Journal of Industrial Organization, 2012, vol. 30, issue 5, 459-470

Abstract: Incumbent firms, especially in high-tech industries, often contract and collaborate with small research units on single projects. A delicate resulting contracting decision thus is how to allocate control. This paper considers the incumbent's problem to design a research contract that specifies: the allocation of control; the unit's research input, and its monetary compensation. Contracting is complicated by the unit's private information about its technological skills; research outputs also are not verifiable. Control affects the distribution of the private benefits from research and can be shared. From a complete contract perspective, an allocation of control that is contingent on the unit's reported information provides the incumbent an additional instrument for designing the incentives. Control can generate countervailing incentives and mitigate the limitations of contracts in research environments, to the point of extracting the full surplus. The analysis further clarifies when control is centralized by the incumbent, when it is shared between the parties, and when it is delegated to the unit.

Keywords: Research collaborations; Contracts; Control; Adverse selection; Countervailing incentives (search for similar items in EconPapers)
JEL-codes: D23 D82 L14 O31 O32 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:30:y:2012:i:5:p:459-470

DOI: 10.1016/j.ijindorg.2012.03.001

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