IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Delegation and R&D Incentives: Theory and Evidence from Italy

  • Jakub Kastl

    (Stanford U.)

  • David Martimort

    (IDEI CREMAQ)

  • Salvatore Piccolo

    (University of Naples)

We study the relationship between delegation within organizations and innovation incentives. When a firm owner deals with a privately informed manager who undertakes an unverifiable R&D decision, we show that an organizational mode awarding autonomy to the manager spurs innovation incentives relative to arrangements based on vertical control. The idea is that delegation increases the manager's ex-post information rent and thus encourages his R&D effort relative to instances where contractual rules excessively limit his autonomy. This R&D-enhancing effect also increases (ex-ante) gains from trade and makes both contractual parties better off. However, we also show that because of asymmetric information, more intensive R&D investments have a negative impact on ex-post efficiency: By inducing a better distribution of R&D outcomes, arrangements awarding more autonomy to the privately informed manager strengthen the rent-extraction efficiency trade-off and thus exacerbate the underproduction result typically obtained in adverse selection environments. This unveils an inconsistency between ex-ante and ex-post efficiency which has been overlooked in previous work. Using data from the Italian manufacturing industry we test the theoretical model. The empirical results provide support for our predictions.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 1095.

as
in new window

Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:red:sed008:1095
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed008:1095. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.