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R&D Outsourcing Contract with Information Leakage

Author

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  • Shirley J. , HO

    (National Chengchi University, Taiwan)

Abstract

This paper studies an R&D outsourcing contract between a firm and a contractor, considereing the possibility that in the interim stage, the contractor might sell the innovation to the rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.

Suggested Citation

  • Shirley J. , HO, 2007. "R&D Outsourcing Contract with Information Leakage," Discussion Papers (ECON - Département des Sciences Economiques) 2007026, Université catholique de Louvain, Département des Sciences Economiques.
  • Handle: RePEc:ctl:louvec:2007026
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2007-26.pdf
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    References listed on IDEAS

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    Cited by:

    1. Versaevel Bruno & Vencatachellum Désiré, 2009. "R&D Delegation in a Duopoly with Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-42, December.
    2. Versaevel Bruno & Vencatachellum Désiré, 2009. "R&D Delegation in a Duopoly with Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-42, December.

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    More about this item

    Keywords

    R&D outsourcing; Contract; Information leakage; Collusion; Multiple agents;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Z - Other Special Topics

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