Individual Preferences, Organization, and Competition in a Model of R&D Incentive Provision

Nicola Lacetera and Lorenzo Zirulia

No 17031, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Understanding the organization of R&D activities requires the simultaneous consideration of scientific workers' talent and tastes, companies' organizational choices, and the characteristics of the relevant industry. We develop a model of the provision of incentives to corporate scientists, in an environment where (1) scientists engage in multiple activities when performing research; (2) knowledge is not perfectly appropriable; (3) scientists are responsive to both monetary and non-monetary incentives; and (4) firms compete on the product market. We show that both the degree of knowledge spillovers and of market competition affect the incentives given to scientists, and these effects interact. First, high knowledge spillovers lead firms to soften incentives when product market competition is high, and to strengthen incentives when competition is low. Second, the relationship between the intensity of competition and the power of incentives is U-shaped, with the exact shape depending on the degree of knowledge spillovers. We also show that the performance-contingent pay for both applied and basic research increases with the non-pecuniary benefits that scientists obtain from research. We relate our findings to the existing empirical research, and also discuss their implications for management and public policy.

JEL-codes: L1 L22 M12 O31 O32 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-com, nep-cse, nep-ind, nep-ino, nep-ipr and nep-pr~
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Published as Lacetera, Nicola & Zirulia, Lorenzo, 2012. "Individual preferences, organization, and competition in a model of R&D incentive provision," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 550-570.

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Journal Article: Individual preferences, organization, and competition in a model of R&D incentive provision (2012)
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