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Organizational Design of R&D Activities

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  • Stefan Ambec
  • Michel Poitevin

Abstract

This paper addresses the question of whether R&D should be carried out by an independent research unit or be produced in-house by the firm marketing the innovation. We define two organizational structures. In an integrated structure, the firm that markets the innovation also carries out and finances research leading to the innovation. In an independent structure, the firm that markets the innovation buys it from an independent research unit which is financed externally. We compare the two structures under the assumption that the research unit has some private information about the real cost of developing the new product. When development costs are negatively correlated with revenues from the innovation, the integrated structure dominates. The independent structure dominates in the opposite case. Cet article analyse la décision de faire de la R&D, soit à l'interne, soit à l'externe. Deux formes organisationnelles sont définies. Dans la structure intégrée, la firme utilisant ou vendant l'innovation finance et effectue la R&D. Dans la structure indépendante, cette même firme achète l'innovation d'une firme de R&D indépendante. On compare les deux types d'organisations sous l'hypothèse que l'unité de R&D possède une information privilégiée sur le coût de développement de l'innovation. Lorsque les coûts de développement sont corrélés négativement avec les bénéfices de l'innovation, la structure intégrée domine. La structure indépendante domine dans le cas contraire.

Suggested Citation

  • Stefan Ambec & Michel Poitevin, 2001. "Organizational Design of R&D Activities," CIRANO Working Papers 2001s-38, CIRANO.
  • Handle: RePEc:cir:cirwor:2001s-38
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    File URL: http://www.cirano.qc.ca/files/publications/2001s-38.pdf
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    References listed on IDEAS

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    Cited by:

    1. Dirk Bergemann & Ulrigh Hege, 2005. "The Financing of Innovation: Learning and Stopping," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 719-752, Winter.
    2. Versaevel, Bruno & de Villemeur, Étienne, 2003. "Conflict and Cooperation on R&D Markets," IDEI Working Papers 191, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Dirk Bergemann & Ulrich Hege, 2002. "The Value of Benchmarking," Cowles Foundation Discussion Papers 1379, Cowles Foundation for Research in Economics, Yale University, revised Oct 2002.
    4. Bruno Amable & Régis Breton & Xavier Ragot, 2002. "Does the “New Economy” Change the Frontiers of the Large Corporation," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 239-255.

    More about this item

    Keywords

    Contract theory; R&D; decentralization; Théorie des contrats; R&D; décentralisation;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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