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Influence activity and the organization of research and development

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  • Bruno Cassiman

Abstract

The organizational design of research and development conditions the incentives of the researchers of the research project. In particular, the organizational form determines the allocation of effort of the researcher between time spent on research and time spent lobbying m anagement. Researchers prefer to spend their time on research. However, the researchers only get utility from performing research if the project is approved for its full duration. Spending time lobbying management for the continuation of the researcher’s project increases the probability that the management observes a favorable signal about the project. Organizing a research joint venture increases the flexibility of the organizational form with respect to the continuation decision. For low correlation between the signals of the partners about the expected profitability of the project, we find that the organization of a research joint venture reduces influence activity by the researchers and increases expected profits of the partners. For high correlation between the signals, internal research projects lower influence activity by the researchers. We try to relate the correlation of the partners signals to the characteristics of basic research versus more applied research projects, and find that the model is consistent with the observation that research joint ventures seem involved in more basic research projects compared to internal R&D departments, which concentrate on more applied research.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 264.

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Date of creation: Jun 1996
Date of revision: Dec 1997
Handle: RePEc:upf:upfgen:264

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Research joint ventures; influence activity; signal jamming; incomplete contracts;

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  1. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. 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.
  3. J Michael Geringer & Louis Hebert, 1989. "Control and Performance of International Joint Ventures," Journal of International Business Studies, Palgrave Macmillan, vol. 20(2), pages 235-254, June.
  4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 691-719, August.
  5. Bruce Kogut, 1991. "Joint Ventures and the Option to Expand and Acquire," Management Science, INFORMS, INFORMS, vol. 37(1), pages 19-33, January.
  6. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(1), pages 42-60, February.
  7. Zender, Jaime F, 1991. " Optimal Financial Instruments," Journal of Finance, American Finance Association, American Finance Association, vol. 46(5), pages 1645-63, December.
  8. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  9. Cremer, Jacques, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(2), pages 275-95, May.
  10. Rosenberg, Nathan, 1990. "Why do firms do basic research (with their own money)?," Research Policy, Elsevier, vol. 19(2), pages 165-174, April.
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