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Individual preferences, organization, and competition in a model of R&D incentive provision

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  • Lacetera, Nicola
  • Zirulia, Lorenzo

Abstract

Understanding the organization of R&D activities requires the simultaneous consideration of scientific workers’ talent and tastes, companies’ organizational choices, and the characteristics of the relevant industry. We develop a model of the provision of incentives to corporate scientists, in an environment where (1) scientists engage in multiple activities when performing research; (2) knowledge is not perfectly appropriable; (3) scientists are responsive to both monetary and non-monetary incentives; and (4) firms compete on the product market. We show that both knowledge spillovers and market competition affect the incentives given to scientists, and these effects interact. First, high knowledge spillovers lead firms to soften incentives when product market competition is high, and to strengthen incentives when competition is low. Second, the relationship between the intensity of competition and the power of incentives is U-shaped, with the exact shape depending on the degree of knowledge spillovers. We also show that the performance-contingent pay for both applied and basic research increases with the non-pecuniary benefits that scientists obtain from research, while the fixed component decreases. We relate our findings to the existing empirical evidence, and also discuss their implications for management and public policy.

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  • Lacetera, Nicola & Zirulia, Lorenzo, 2012. "Individual preferences, organization, and competition in a model of R&D incentive provision," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 550-570.
  • Handle: RePEc:eee:jeborg:v:84:y:2012:i:2:p:550-570
    DOI: 10.1016/j.jebo.2012.09.001
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    Cited by:

    1. Lissoni, Francesco & Montobbio, Fabio & Zirulia, Lorenzo, 2013. "Inventorship and authorship as attribution rights: An enquiry into the economics of scientific credit," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 49-69.
    2. Catalina Martínez & Sarah Parlane, 2018. "On the Firms’ Decision to Hire Academic Scientists," Working Papers 201801, School of Economics, University College Dublin.
    3. Liu, Christopher C. & Stuart, Toby, 2014. "Positions and rewards: The allocation of resources within a science-based entrepreneurial firm," Research Policy, Elsevier, vol. 43(7), pages 1134-1143.
    4. Benoît Le Maux & Sarah Necker & Yvon Rocaboy, 2016. "Cheat or Perish? A Theory of Scientific Customs," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2016-17, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    5. Bralind Kiri & Nicola Lacetera & Lorenzo Zirulia, 2015. "Above a Swamp: A Theory of High-Quality Scientific Production," NBER Working Papers 21143, National Bureau of Economic Research, Inc.
    6. Simeth, Markus & Raffo, Julio D., 2013. "What makes companies pursue an Open Science strategy?," Research Policy, Elsevier, vol. 42(9), pages 1531-1543.
    7. Evangelia Chalioti, 2015. "Incentive contracts under product market competition and R&D spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 305-328, February.
    8. Sauermann, Henry & Roach, Michael, 2014. "Not all scientists pay to be scientists: PhDs’ preferences for publishing in industrial employment," Research Policy, Elsevier, vol. 43(1), pages 32-47.
    9. Veldman, Jasper & Gaalman, Gerard J.C., 2015. "Competitive investments in cost reducing process improvement: The role of managerial incentives and spillover learning," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 701-709.
    10. Catalina Martínez & Sarah Parlane, 2018. "On the firms’ decision to hire academic scientists," Working Papers 1801, Instituto de Políticas y Bienes Públicos (IPP), CSIC.
    11. repec:wip:wpaper:6 is not listed on IDEAS

    More about this item

    Keywords

    Incentive provision; R&D activities; Economics of science; Product market competition;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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