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Organizational Design of R&D activities

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  • Stefan Ambec

    ()

    (CSEF, Università di Salerno)

  • Michel Poitevin

    (Département de sciences économiques, C.R.D.E., Université de Montréal and CIRANO)

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.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 60.

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Date of creation: 01 Jun 2001
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Handle: RePEc:sef:csefwp:60
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  • 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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  1. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
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  8. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
  9. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
  10. Tapon, Francis & Cadsby, Charles Bram, 1996. "The optimal organization of research: evidence from eight case studies of pharmaceutical firms," Journal of Economic Behavior & Organization, Elsevier, vol. 31(3), pages 381-399, December.
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  12. Dearden, J. & Ickes, B.W. & Samuelson, L., 1988. "To Innovate Or Not To Innovate: Incentives And Innovation In Hierarchies," Papers 9-88-4, Pennsylvania State - Department of Economics.
  13. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  14. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
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  17. Qian, Yingyi & Xu, Chenggang, 1998. "Innovation and Bureaucracy under Soft and Hard Budget Constraints," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 151-64, January.
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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. repec:dgr:kubcen:200116 is not listed on IDEAS
  3. Bruno AMABLE & Régis BRETON & Xavier RAGOT, 2002. "Does the “New Economy” Change the Frontiers of the Large Corporation?," Discussion Papers (REL - Recherches Economiques de Louvain) 2002029, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  4. Versaevel, Bruno & de Villemeur, Étienne, 2003. "Conflict and Cooperation on R&D Markets," IDEI Working Papers 191, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. HEGE, Ulrich & BERGEMANN, Dirk, 2002. "The value of benchmarking," Les Cahiers de Recherche 752, HEC Paris.

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