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External Ventures: Why Firms Don't Develop All Their Inventions In-house

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  • Russell Thomson

    ()
    (Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia (IPRIA), The University of Melbourne)

  • Elizabeth Webster

    ()
    (Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia (IPRIA), The University of Melbourne)

Abstract

In this paper we consider why firms sometimes choose an external development path for their own inventions, despite the costs of contracting and the risks of opportunistic behaviour and expropriation. We model the probability that firms adopt an external development strategy using survey data from over 2700 Australian inventions. Our results indicate that firms pursue external development strategies in response to perceived project-level risk about the technical feasibility of the invention, especially when suported by confidence in the patent system. Our findings also confirm that small to medium size enterprises, highly leveraged large firms and firms with few co-specialized assets are more likely to pursue an external development strategy.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2011n19.

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Length: 28 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:iae:iaewps:wp2011n19

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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Keywords: Outsourcing R&D; managing technological risk; licensing innovation;

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