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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.

Suggested Citation

  • Christoph Lülfesmann, 2004. "Research Collaborations with Sequential Investments," Economica, London School of Economics and Political Science, vol. 71(281), pages 241-259, May.
  • Handle: RePEc:bla:econom:v:71:y:2004:i:281:p:241-259

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    References listed on IDEAS

    1. 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.
    2. Hagedoorn, John & Link, Albert N. & Vonortas, Nicholas S., 2000. "Research partnerships1," Research Policy, Elsevier, vol. 29(4-5), pages 567-586, April.
    3. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
    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, vol. 94(4), pages 691-719, August.
    5. 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.
    6. Rosenkranz, Stephanie & Schmitz, Patrick W., 1999. "Know-how disclosure and incomplete contracts," Economics Letters, Elsevier, vol. 63(2), pages 181-185, May.
    7. Philippe Aghion & Jean Tirole, 1994. "The Management of Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1185-1209.
    8. 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 361-379, June.
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    Cited by:

    1. Chen, Bin R. & Chiu, Y. Stephen, 2010. "Public-private partnerships: Task interdependence and contractibility," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 591-603, November.
    2. Valeria Gattai & Piergiovanna Natale, 2014. "Joint Ventures and the Property Rights Theory of the Firm: a Review of the Literature," Working Papers 287, University of Milano-Bicocca, Department of Economics, revised Dec 2014.

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