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R&D in a strategic delegation game revisited: a note

  • Michael Kopel

    (Institute of Management Science, Vienna University of Technology, Theresianumgasse 27, A-1040 Vienna, Austria)

  • Christian Riegler

    (Department of Management Accounting, Vienna University of Economics and Business Administration, Althanstrasse 39-45, A-1090 Vienna, Austria)

In this note we reconsider the paper of Zhang and Zhang (1997), published in Managerial and Decision Economics, who analyze a strategic delegation model with R&D spillovers in an imperfectly competitive market. We were motivated to study their setup by a puzzling result given in their paper: delegating the production and R&D decisions to managers is never beneficial for the owners of the firm. When we tried to understand the driving forces of this result, we found however that the findings of Zhang and Zhang (1997) are incorrect. We explain why their derivations are wrong and demonstrate via counterexamples that the main propositions in their paper do not hold. In addition, we show how the correct solution of this R&D model with spillovers can be obtained. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1271
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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 27 (2006)
Issue (Month): 7 ()
Pages: 605-612

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Handle: RePEc:wly:mgtdec:v:27:y:2006:i:7:p:605-612
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. L. Lambertini, 2004. "Innovation and Managerial Incentives: A Tale of Two Systems," Working Papers 498, Dipartimento Scienze Economiche, Universita' di Bologna.
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