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Organization of R&D With Two Agents and Principal

  • Ekaterina Goldfayn

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    In order to deliver an innovation principals employ competing agents in some circumstances, while employing research team in other circumstances. This paper compares various structures of R&D to provide a rational behind this observation. It is assumed, that the principal can employ either one agent, two competing agents or two agents, cooperating in a team. Which of the available structures will be chosen by principal, depends on value of prize in stake, technological benefits of team production and team structure. Due to the positive effect on incentives, competing agents always generate larger profit to the principal, than a single agent. Further, they often perform better than the team, even when the latter has significant technological benefits. However, the performance of the team may be improved, if it is organized as a hierarchy with the team leader (who is responsible for allocation of resources) and his subordinate. The paper provides conditions on parameters, which determine whether the principal should employ a team or competing agents for performing R&D.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse3_2006.pdf
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    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse3_2006.

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    Length: 54
    Date of creation: Feb 2006
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse3_2006
    Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

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    1. Hemmer, Thomas, 1995. "On the interrelation between production technology, job design, and incentives," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 209-245, April.
    2. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August.
    3. Macho-Stadler, I. & Perez-Castrillo, J.D., 1991. "Moral Hazard with Several Agents: The Gains From Cooperation," DELTA Working Papers 91-26, DELTA (Ecole normale supérieure).
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    6. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
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    8. Cooper, Russell, et al, 1990. "Selection Criteria in Coordination Games: Some Experimental Results," American Economic Review, American Economic Association, vol. 80(1), pages 218-33, March.
    9. Ekaterina Goldfain & Eugen Kovac, 2005. "Financing of Competing Projects with Venture Capital," Bonn Econ Discussion Papers bgse37_2005, University of Bonn, Germany.
    10. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May.
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    13. repec:car:ciorup:87-04 is not listed on IDEAS
    14. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
    15. Fabrizi, Simona & Lippert, Steffen, 2003. "Moral Hazard and the Internal Organization of Joint Research," DFAEII Working Papers 2003-10, University of the Basque Country - Department of Foundations of Economic Analysis II.
    16. Barron, John M & Gjerde, Kathy Paulson, 1997. "Peer Pressure in an Agency Relationship," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 234-54, April.
    17. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
    18. Miller, Nolan H., 1997. "Efficiency in Partnerships with Joint Monitoring," Journal of Economic Theory, Elsevier, vol. 77(2), pages 285-299, December.
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