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Organization of R&D With Two Agents and Principal

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  • Ekaterina Goldfayn

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    Abstract

    In order to deliver an innovation principals employ competing agents in some circumstances, while employing research team in other circumstances. This paper compares various structures of R&D to provide a rational behind this observation. It is assumed, that the principal can employ either one agent, two competing agents or two agents, cooperating in a team. Which of the available structures will be chosen by principal, depends on value of prize in stake, technological benefits of team production and team structure. Due to the positive effect on incentives, competing agents always generate larger profit to the principal, than a single agent. Further, they often perform better than the team, even when the latter has significant technological benefits. However, the performance of the team may be improved, if it is organized as a hierarchy with the team leader (who is responsible for allocation of resources) and his subordinate. The paper provides conditions on parameters, which determine whether the principal should employ a team or competing agents for performing R&D.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse3_2006.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse3_2006.

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    Length: 54
    Date of creation: Feb 2006
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse3_2006

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: moral hazard; hierarchy; team production; competition; organization of R&D;

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