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On the contractual governance of research collaborations: Allocating control and intellectual property rights in the shadow of potential termination

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  • Panico, Claudio
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    Abstract

    This paper investigates the governance design problem of a large company that wants to engage a small and cashless firm into a research collaboration. This analysis reflects the frequently observed collaborations between pharma companies and biotechs, and an actual research contract is assessed to link theory to practice. The governance form refers to the allocation of control rights over the research process and property rights over research output(s), as determined by the initial contract; yet this contract is incomplete. The parties negotiate at a later stage from bargaining positions that depend on the initial choice of the governance, but they also contemplate the possibility that the collaboration will be terminated. By means of a simple model that captures the core aspects of the contractual environment, I answer a key research question: How should governance be designed in the shadow of potential termination to provide the research firm with the incentives to invest in the collaboration? First, it is in the company’s interest to choose a governance form that eliminates the possibility of termination and stabilizes the collaboration whenever possible. Second, if the collaboration cannot be stabilized, the company faces a trade-off between reducing the probability of termination and providing incentives, which is ultimately resolved by making the collaboration highly unstable. Third, property rights and control are substitutes in the governance design: If the company collects more property rights, it must relinquish more control rights.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0048733311001259
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    Bibliographic Info

    Article provided by Elsevier in its journal Research Policy.

    Volume (Year): 40 (2011)
    Issue (Month): 10 ()
    Pages: 1403-1411

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    Handle: RePEc:eee:respol:v:40:y:2011:i:10:p:1403-1411

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    Web page: http://www.elsevier.com/locate/respol

    Related research

    Keywords: Research collaborations; Biopharmaceutical industry; Contracts; Governance; Property rights; Control rights;

    References

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    1. Josh Lerner & Ulrike Malmendier, 2005. "Contractibility and the Design of Research Agreements," NBER Working Papers 11292, National Bureau of Economic Research, Inc.
    2. Ashish Arora & Robert P. Merges, 2004. "Specialized supply firms, property rights and firm boundaries," Industrial and Corporate Change, Oxford University Press, vol. 13(3), pages 451-475, June.
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    4. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
    5. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
    6. Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    7. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 125-56, June.
    8. Baker, George P. & Gibbons, Robert & Murphy, Kevin J., 2008. "Strategic alliances: Bridges between "islands of conscious power"," Journal of the Japanese and International Economies, Elsevier, vol. 22(2), pages 146-163, June.
    9. Ashish Arora & Alfonso Gambardella, 2010. "Ideas for rent: an overview of markets for technology," Industrial and Corporate Change, Oxford University Press, vol. 19(3), pages 775-803, June.
    10. Reuer, Jeffrey J. & Zollo, Maurizio, 2005. "Termination outcomes of research alliances," Research Policy, Elsevier, vol. 34(1), pages 101-115, February.
    11. Kogut, Bruce, 1989. "The Stability of Joint Ventures: Reciprocity and Competitive Rivalry," Journal of Industrial Economics, Wiley Blackwell, vol. 38(2), pages 183-98, December.
    12. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
    13. Claudio Panico, 2009. "Employment Relationships in Knowledge-Based Firms: Who Should Have Power?," KITeS Working Papers 009, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2009.
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    Cited by:
    1. Panico, Claudio, 2012. "Control and contract design in research collaborations: A complete contract perspective," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 459-470.
    2. Gambardella, Alfonso & Panico, Claudio, 2014. "On the management of open innovation," Research Policy, Elsevier, vol. 43(5), pages 903-913.

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