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Organizational Design of R&D Activities

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  • Stefan Ambec
  • Michel Poitevin

Abstract

This paper addresses the question of whether R&D should be carried out by an independent research unit or be produced in-house by the firm marketing the innovation. We define two contractual structures. In an independent structure, the firm that markets the innovation buys it from an independent research unit which is financed externally. In an integrated structure, the firm that markets the innovation also carries out and finances research leading to the innovation. We compare the two structures under the assumption that the research unit has some private information about the real cost of developing the new product. We find that the integrated structure dominates when an innovation costly to develop is also a less drastic technology or a product less valued by consumers. The independent structure dominates in the opposite case.
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Suggested Citation

  • Stefan Ambec & Michel Poitevin, 2001. "Organizational Design of R&D Activities," CIRANO Working Papers 2001s-38, CIRANO.
    • Handle: RePEc:cir:cirwor:2001s-38
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    Cited by:

    1. Versaevel Bruno & Vencatachellum Désiré, 2009. "R&D Delegation in a Duopoly with Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-42, December.
    2. Versaevel, Bruno & de Villemeur, Étienne, 2003. "Conflict and Cooperation on R&D Markets," IDEI Working Papers 191, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Mathews, Richmond D., 2006. "Strategic alliances, equity stakes, and entry deterrence," Journal of Financial Economics, Elsevier, vol. 80(1), pages 35-79, April.
    4. Dirk Bergemann & Ulrich Hege, 2002. "The Value of Benchmarking," Cowles Foundation Discussion Papers 1379, Cowles Foundation for Research in Economics, Yale University, revised Oct 2002.
    5. Manfred Dix & Néstor Gandelman, 2007. "R&D Institutional Arrangements: Start‐Up Ventures Versus Internal Lab," Manchester School, University of Manchester, vol. 75(2), pages 218-236, March.
    6. Dirk Bergemann & Ulrigh Hege, 2005. "The Financing of Innovation: Learning and Stopping," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 719-752, Winter.
    7. Bruno Amable & Régis Breton & Xavier Ragot, 2002. "Does the “New Economy” Change the Frontiers of the Large Corporation," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 239-255.
    8. Versaevel Bruno & Vencatachellum Désiré, 2009. "R&D Delegation in a Duopoly with Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-42, December.

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    More about this item

    Keywords

    Contract theory; R&D; decentralization; Théorie des contrats; R&D; décentralisation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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