Breaking up a research consortium

Andras Niedermayer and Jianjun Wu

International Journal of Industrial Organization, 2013, vol. 31, issue 4, 342-353

Abstract: Inter-firm R&D collaborations through contractual arrangements have become increasingly popular, but in many cases they are broken up without any joint discovery. We provide a rationale for the breakup date in R&D collaboration agreements. More specifically, we consider a research consortium initiated by a firm A with a firm B. B has private information about whether it is committed to the project or a free-rider. We show that under fairly general conditions, a breakup date in the contract is a (second-best) optimal screening device for firm A to screen out free-riders. With the additional constraint of renegotiation proofness, A can only partially screen out free-riders: entry by some free-riders makes sure that A does not have an incentive to renegotiate the contract ex post. We also propose empirical strategies for identifying the three likely causes of a breakup date: adverse selection, moral hazard, and project non-viability.

Keywords: Optimal R&D contracts; Adverse selection; Breakup date; R&D collaboration (search for similar items in EconPapers)
JEL-codes: C72 D82 L20 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:4:p:342-353

DOI: 10.1016/j.ijindorg.2013.05.002

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