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The Cost of Misaligned Governance in R&D Alliances

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  • Rachelle C. Sampson
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    Abstract

    Transaction cost economics argues that aligning transactions with governance structures leads to more efficient outcomes. While empirical evidence demonstrates that firms choose governance consistent with transaction cost predictions, the performance implications of governance choices are less well explored. Here I examine the cost of misaligned governance in the context of research and development (R&D) alliances. Two costs of misalignment are evaluated: excessive contracting hazards and excessive bureaucracy. Using a sample of R&D alliances in the telecom equipment industry, I find that alliance governance selected according to transaction cost arguments improves collaborative benefits substantially over governance not so selected. Interestingly, governance misalignments imposing excessive bureaucracy reduce collaborative benefits more than misalignments imposing excessive contracting hazards. These results provide empirical evidence of the cost of misaligned governance and have implications for research on the limits of internal organization and links between organizational form and innovation. Copyright 2004, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

    Volume (Year): 20 (2004)
    Issue (Month): 2 (October)
    Pages: 484-526

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    Handle: RePEc:oup:jleorg:v:20:y:2004:i:2:p:484-526

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    Cited by:
    1. Michael D. Ryall & Rachelle C. Sampson, 2009. "Formal Contracts in the Presence of Relational Enforcement Mechanisms: Evidence from Technology Development Projects," Management Science, INFORMS, vol. 55(6), pages 906-925, June.
    2. Aric Rindfleisch & Kersi Antia & Janet Bercovitz & James Brown & Joseph Cannon & Stephen Carson & Mrinal Ghosh & Susan Helper & Diana Robertson & Kenneth Wathne, 2010. "Transaction costs, opportunism, and governance: Contextual considerations and future research opportunities," Marketing Letters, Springer, vol. 21(3), pages 211-222, September.
    3. Fernández Olmos, Marta, 2010. "The performance implications of "grow or buy" decisions in the wine industry," Food Policy, Elsevier, vol. 35(3), pages 256-264, June.
    4. Gnyawali, Devi R. & Park, Byung-Jin (Robert), 2011. "Co-opetition between giants: Collaboration with competitors for technological innovation," Research Policy, Elsevier, vol. 40(5), pages 650-663, June.
    5. Malhotra, Deepak & Lumineau, Fabrice, 2011. "Trust and collaboration in the aftermath of conflict: the effects of contract structure," MPRA Paper 38358, University Library of Munich, Germany.
    6. Valentina Morandi, 2013. "The management of industry–university joint research projects: how do partners coordinate and control R&D activities?," The Journal of Technology Transfer, Springer, vol. 38(2), pages 69-92, April.
    7. Marco Furlotti, 2007. "There is more to contracts than incompleteness: a review and assessment of empirical research on inter-firm contract design," Journal of Management and Governance, Springer, vol. 11(1), pages 61-99, March.

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