Contractibility and the Design of Research Agreements

Josh Lerner and Ulrike Malmendier

American Economic Review, 2010, vol. 100, issue 1, 214-46

Abstract: We analyze how contractibility affects contract design. A major concern when designing research agreements is that researchers use their funding to subsidize other projects. We show that, when research activities are not contractible, an option contract is optimal. The financing firm obtains the option to terminate the agreement and, in case of termination, broad property rights. The threat of termination deters researchers from cross-subsidization, and the cost of exercising the termination option deters the financing firm from opportunistic termination. We test this prediction using 580 biotechnology research agreements. Contracts with termination options are more common when research is non-contractible. (JEL D86, L65, O31, O34)

JEL-codes: D86 L65 O31 O34 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/aer.100.1.214
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Citations: View citations in EconPapers (56)

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Related works:
Working Paper: Contractibility and the Design of Research Agreements (2008)
Working Paper: Contractibility and the Design of Research Agreements (2005)
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