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Contract Enforcement and R&D Investment

  • Watzinger, Martin
  • Seitz, Michael
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    In this article we study the relation between the quality of contract enforcement and R&D investment across countries and industries. If companies invest successfully in R&D they are open for exploitation by their supplier if supply contracts are not enforceable. This hold-up problem can reduce the incentive to invest in R&D exante. In line with this theoretical idea we find in the empirical analysis that R&D investment increases with the quality of the judicial system. This effect is particularly strong in industries which rely more on contracts to acquire input and in which it is harder to vertically integrate.

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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79773.

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    Date of creation: 2013
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    Handle: RePEc:zbw:vfsc13:79773
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    9. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2009. "Governance matters VIII : aggregate and individual governance indicators 1996-2008," Policy Research Working Paper Series 4978, The World Bank.
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