Advanced Search
MyIDEAS: Login to save this paper or follow this series

Balancing Incentives: The Tension Between Basic and Applied Research

Contents:

Author Info

  • Iain Cockburn
  • Rebecca Henderson
  • Scott Stern

Abstract

This paper presents empirical evidence that the intensity of research workers' incentives for the distinct tasks of basic and applied research are positively associated with each other. We relate this finding to the prediction of the theoretical literature that when effort is multi-dimensional, firms will balance' the provision of incentives; when incentives are strong along one dimension, firms will set high-powered incentives for effort along other dimensions which compete for the worker's effort and attention (Holmstrom and Milgrom, 1991). We test for this effect in the context of pharmaceutical research using detailed data on individual research programs financed by private firms. Consistent with the complementarity hypothesis, we find strong evidence that firms who provide strong promotion-based incentives for individuals to invest in fundamental or basic' research also provide more intense incentives for success in applied research through the capital budgeting process. The intensity of these bonus' incentives is weaker in firms who use a more centralized research budgeting process. We interpret this latter finding as providing support for theories which emphasize substitutability between contractible and non-contractible signals of effort (Baker, Gibbons, and Murphy, 1994).

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w6882.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6882.

as in new window
Length:
Date of creation: Jan 1999
Date of revision:
Handle: RePEc:nbr:nberwo:6882

Note: PR
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 46(2), pages 125-56, June.
  2. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(1), pages 1-29, February.
  4. Bharant N. Anand & Alexander Galetovic, 1998. "Weak Property Rights and hold-up in R&D," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 39, Centro de Economía Aplicada, Universidad de Chile.
  5. Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 12(3), pages 305-327, December.
  6. Rebecca Henderson & Iain Cockburn, . "Scale, Scope and Spillovers: The Determinants of Research Productivity in Drug Discovery," Working Papers, Department of Economics, University of Lancaster ec25/94, Department of Economics, University of Lancaster.
  7. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  8. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(3), pages 598-614, June.
  9. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  10. George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc.
  11. Holmström, Bengt, 1989. "Agency Costs and Innovation," Working Paper Series, Research Institute of Industrial Economics 214, Research Institute of Industrial Economics.
  12. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(397), pages 569-96, September.
  13. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1346-1361, December.
  14. Slade, Margaret E, 1996. "Multitask Agency and Contract Choice: An Empirical Exploration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 465-86, May.
  15. Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 111-33, March.
  16. Casey Ichniowski & Kathryn Shaw & Giovanna Prennushi, 1995. "The Effects of Human Resource Management Practices on Productivity," NBER Working Papers 5333, National Bureau of Economic Research, Inc.
  17. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 972-91, September.
  18. Hauser, John R. & Zettelmeyer, Florian., 1996. "Metrics to evaluate R,D&E," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 156-96. Working paper (Sl, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  19. Joshua S. Cans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 9(4), pages 485-511, December.
  20. Arora, Ashish, 1996. "Testing for complementarities in reduced-form regressions: A note," Economics Letters, Elsevier, Elsevier, vol. 50(1), pages 51-55, January.
  21. Ariel Pakes, 1981. "Patents, R and D, and the Stock Market Rate of Return," NBER Working Papers 0786, National Bureau of Economic Research, Inc.
  22. Erin Anderson & David C. Schmittlein, 1984. "Integration of the Sales Force: An Empirical Examination," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 385-395, Autumn.
  23. Milgrom, Paul & Roberts, John, 1987. "Bargaining and Influence Costs and the Organization of Economic Activity," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt32s7d4jv, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  24. Susan Athey & Scott Stern, 1998. "An Empirical Framework for Testing Theories About Complimentarity in Organizational Design," NBER Working Papers 6600, National Bureau of Economic Research, Inc.
  25. Zucker, Lynne G & Darby, Michael R & Brewer, Marilynn B, 1998. "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review, American Economic Association, American Economic Association, vol. 88(1), pages 290-306, March.
  26. Patrick Bolton & David S. Scharfstein, 1998. "Corporate Finance, the Theory of the Firm, and Organizations," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(4), pages 95-114, Fall.
  27. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 1185-1209, November.
  28. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  29. Anton, James J & Yao, Dennis A, 1994. "Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 190-209, March.
  30. Andrew B. Abel, 1984. "R&D and the Market Value of the Firm: A Note," NBER Chapters, in: R & D, Patents, and Productivity, pages 261-270 National Bureau of Economic Research, Inc.
  31. Henderson, Rebecca. & Cockburn, Iain., 1994. "Measuring competence? : exploring firm effects in pharmaceutical research," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 3712-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Maria Guadalupe & Julie M. Wulf, 2008. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization," Harvard Business School Working Papers 09-067, Harvard Business School.
  2. Motta, Massimo & Rønde, Thomas, 2002. "Trade secret laws, labor mobility, and innovations," Working Papers, Copenhagen Business School, Department of Economics 08-2002, Copenhagen Business School, Department of Economics.
  3. Heidrun C. Hoppe & Wilhelm Pfähler, 2001. "Oekonomie der Grundlagenforschung und Wissenschaftspolitik," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 2(2), pages 125-144, 05.
  4. Ajay Agrawal & Iain M. Cockburn, 2002. "University Research, Industrial R&D, and the Anchor Tenant Hypothesis," NBER Working Papers 9212, National Bureau of Economic Research, Inc.
  5. N. Lacetera & L. Zirulia, 2008. "Knowledge Spillovers, Competition, and R&D Incentive Contracts," Working Papers 624, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Sharon Novak & Scott Stern, 2007. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," NBER Working Papers 13232, National Bureau of Economic Research, Inc.
  7. Josh Lerner & Ulrike Malmendier, 2005. "Contractibility and the Design of Research Agreements," NBER Working Papers 11292, National Bureau of Economic Research, Inc.
  8. Haeussler, Carolin, 2009. "The Economics of Knowledge Regulation: An Empirical Analysis of Knowledge Flows," Discussion Papers in Business Administration, University of Munich, Munich School of Management 8971, University of Munich, Munich School of Management.
  9. Richard A. Jensen & Marie C. Thursby, 2004. "Patent Licensing and the Research University," NBER Working Papers 10758, National Bureau of Economic Research, Inc.
  10. Xia, Yin, 2004. "University Basic Research And Applied Agricultural Biotechnology," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20187, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  11. Lacetera, Nicola & Zirulia, Lorenzo, 2012. "Individual preferences, organization, and competition in a model of R&D incentive provision," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(2), pages 550-570.
  12. Iain Cockburn & Rebecca Henderson & Scott Stern, 1999. "The Diffusion of Science-Driven Drug Discovery: Organizational Change in Pharmaceutical Research," NBER Working Papers 7359, National Bureau of Economic Research, Inc.
  13. Pablo Casas-Arce & Santhi Hejeebu, 2004. "Job Design and the Benefits of Private Trade," Economics Series Working Papers 204, University of Oxford, Department of Economics.
  14. repec:wip:wpaper:6 is not listed on IDEAS
  15. Xia, Yin & Buccola, Steven T., 2001. "Are Basic Science And Biotechnology Complementary Activities?," 2001 Annual meeting, August 5-8, Chicago, IL, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20575, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  16. Francine Lafontaine & Emmanuel Raynaud, 2002. "The Role of Residual Claims and Self-Enforcement in Franchise Contracting," NBER Working Papers 8868, National Bureau of Economic Research, Inc.
  17. Markus Simeth & Julio Raffo, 2013. "What makes companies pursue an open science strategy?," WIPO Economic Research Working Papers, World Intellectual Property Organization - Economics and Statistics Division 06, World Intellectual Property Organization - Economics and Statistics Division, revised Apr 2013.
  18. Nicola Lacetera, 2003. "Incentives and spillovers in R&D activities: an agency-theoretic analysis of industry-university relations," Microeconomics, EconWPA 0312004, EconWPA.
  19. Kim, Kwansoo & Foltz, Jeremy D. & Barham, Bradford L., 2002. "Are There Synergies Or Tradeoffs Between Articles And Patents In University Ag-Biotech Research," 2002 Annual meeting, July 28-31, Long Beach, CA, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19649, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6882. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.