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Due diligence, research joint ventures, and incentives to innovate

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  • Fabrizi, Simona
  • Lippert, Steffen

Abstract

The decision to cooperate within R&D joint ventures is often based on `expert advice.' Such advice typically originates in a due diligence process, which assesses the R&D joint venture's profitability, for example, by appraising the achievability of synergies. We show that if the experts who advise the owners considering forming an R&D joint venture are also responsible for R&D efforts, they can have incentives to withhold information about the extent of those synergies. Owners optimally react by reducing the incentives to innovate in low-value projects developed within R&D joint ventures and in high-value projects developed within competing research organizations.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33207.

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Date of creation: 04 Sep 2011
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Handle: RePEc:pra:mprapa:33207

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Keywords: Research and development; due diligence; experts' advice; joint venture; synergies; asymmetric information; moral hazard; information withholding (concealing) and revelation;

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Cited by:
  1. Falvey, Rod & Poyago-Theotoky, Joanna & Teerasuwannajak, Khemarat Talerngsri, 2013. "Coordination costs and research joint ventures," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 965-976.

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