Marshallian Forces and Governance Externalities: Location Effects on Contractual Safeguards in Research and Development Alliances

Shivaram V. Devarakonda (), Brian T. McCann () and Jeffrey J. Reuer ()
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Shivaram V. Devarakonda: Department of Management, Chinese University of Hong Kong, Hong Kong;
Brian T. McCann: Owen Graduate School of Management, Vanderbilt University, Nashville, Tennessee 37203;
Jeffrey J. Reuer: Leeds School of Business, University of Colorado, Boulder, Colorado 80309

Organization Science, 2018, vol. 29, issue 6, 1112-1129

Abstract: We examine the impact of geographic location of alliance activities on the design of safeguards in contracts governing research and development (R&D) partnerships. Joining research on agglomeration and alliance governance, we argue that the Marshallian agglomerative forces at work in a given location produce governance-related externalities that extend beyond productivity-related externalities considered in previous research. We investigate how location characteristics linked to Marshallian forces, such as local knowledge spillovers, R&D rivalry, dense industry employment, and the strength of professional organizations, have an impact on the specification of formal governance mechanisms. In particular, these Marshallian forces have a bearing on formal governance mechanisms that safeguard the execution of the R&D partnership, such as joint administrative interfaces and termination provisions. We analyze R&D partnerships between biotechnology and pharmaceutical firms and find that misappropriation hazards arising from greater knowledge spillovers and R&D competition in the region where R&D activities are located promote the use of these formal governance mechanisms in R&D partnerships. We also find that factors supporting thick interpersonal networks, such as the intensity of sectoral employment and the strength of professional bodies, reduce the use of formal governance mechanisms in R&D partnerships.

Keywords: strategic alliances and networks; interorganizational relationships; transaction cost economics; agglomeration (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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