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Due Diligence, Research Joint Ventures, and Incentives to Innovate

  • Simona Fabrizi
  • Steffen Lippert

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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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 168 (2012)
Issue (Month): 4 (December)
Pages: 588-611

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201212)168:4_588:ddrjva_2.0.tx_2-p
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