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R&D Outsourcing Contract with Information Leakage

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Author Info
Shirley J. , HO (National Chengchi University, Taiwan)
Abstract

This paper studies an R&D outsourcing contract between a firm and a contractor, considereing the possibility that in the interim stage, the contractor might sell the innovation to the rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.

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Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Université catholique de Louvain, Département des Sciences Economiques Working Paper with number 2007026.

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Length: 31
Date of creation: 17 Sep 2007
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Handle: RePEc:ctl:louvec:2007026

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Related research
Keywords: R&D outsourcing Contract Information leakage Collusion Multiple agents

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
Z - Other Special Topics

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  4. Dinopoulos, Elias & Segerstrom, Paul, 2006. "North-South Trade and Economic Growth," CEPR Discussion Papers 5887, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Sanford J. Grossman & Joseph E. Stiglitz, 1980. "On the Impossibility of Informationally Efficient Markets," NBER Reprints 0121, National Bureau of Economic Research, Inc.
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  9. MARTIMORT, David & POUDOU, Jean-Christophe & SAND-ZANTMAN, Wilfried, 2008. "Contracting for an Innovation under Bilateral Asymmetric Information," IDEI Working Papers 448, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  10. Fahad Khalil & Jacques Lawarree, 2006. "Incentives for corruptible auditors in the absence of commitment," Working Papers UWEC-2005-09-P, University of Washington, Department of Economics. [Downloadable!]
  11. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May. [Downloadable!] (restricted)
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  14. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July. [Downloadable!] (restricted)
    Other versions:
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