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Research Collaborations with Sequential Investments

  • Christoph Lülfesmann

The paper investigates research collaborations where one partner performs R&D at an initial stage whereas the second partner subsequently invests in the success of a joint project. We allow for any degree of uncertainty of the project's success. It is shown that exclusive ownership of one partner necessarily triggers suboptimal initial research even if renegotiation is admitted. Conversely, joint ownership in form of an equity joint venture or a contingent ownership structure (an option-to-buy arrangement) may facilitate an efficient outcome. In equilibrium, the initially chosen governance structure is always renegotiated which conforms well with empirical evidence. Copyright The London School of Economics and Political Science 2004.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 71 (2004)
Issue (Month): 281 (05)
Pages: 241-259

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Handle: RePEc:bla:econom:v:71:y:2004:i:281:p:241-259
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  1. Hagedoorn, John & Link, Albert N. & Vonortas, Nicholas S., 2000. "Research partnerships1," Research Policy, Elsevier, vol. 29(4-5), pages 567-586, April.
  2. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Arora, Ashish & Gambardella, Alfonso, 1990. "Complementarity and External Linkages: The Strategies of the Large Firms in Biotechnology," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 361-79, June.
  4. Rosenkranz, Stephanie & Schmitz, Patrick W., 1999. "Know-how disclosure and incomplete contracts," MPRA Paper 12533, University Library of Munich, Germany.
  5. 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, vol. 94(4), pages 691-719, August.
  6. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  7. Tao, Zhigang & Wu, Changqi, 1997. "On the organization of cooperative research and development: Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 15(5), pages 573-596, August.
  8. Dasgupta, Sudipto & Tao, Zhigang, 1998. "Contractual incompleteness and the optimality of equity joint ventures," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 391-413, December.
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