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January  2012, 8(1): 127-139. doi: 10.3934/jimo.2012.8.127

Optimal assignment of principalship and residual distribution for cooperative R&D

1. 

School of Management Science & Engineering, Shandong Normal University, Jinan 250014, China

2. 

School of Management, Shandong Jiaotong University, Jinan 250023, China

Received  February 2011 Revised  July 2011 Published  November 2011

This paper develops a general equilibrium model with two firms in cooperative R&D projects to investigate the optimal assignment of principalship and residual distribution strategies. We make a distinction between cooperative R&D effort and monitoring effort. When it is costly to sign contracts on R&D efforts under complete information, it may be optimal to let one firm purchase the rights to monitor and to direct, and claim full residual. Principalship is the purchase of these rights. These rights are limited residual rights of control over R&D actions. In the benchmark case of incomplete information, we have also explored how the optimal assignment of principalship distribution in cooperative R&D and partnership depends on the interaction between each member’s importance in cooperative R&D, the effectiveness of monitoring and the degree of R&D teamwork.
Citation: Chang-Feng Wang, Yan Han. Optimal assignment of principalship and residual distribution for cooperative R&D. Journal of Industrial & Management Optimization, 2012, 8 (1) : 127-139. doi: 10.3934/jimo.2012.8.127
References:
[1]

K. Arrow, Economic welfare and the allocation of resources for invention,, in, (1962), 609.   Google Scholar

[2]

K. Arrow, The property rights doctrine and demand revelation under incomplete information,, in, (1979), 23.   Google Scholar

[3]

Y. Bai and G. C. O'Brien, The strategic motives behind firm's engagement in cooperative research and development: A new explanation from four theoretical perspectives,, J. Model. Manage., 3 (2008), 162.  doi: 10.1108/17465660810890135.  Google Scholar

[4]

R. Belderbos, M. Carree and B. Lokshin, Cooperative R&D and firm performance,, Res. Pol., 33 (2004), 1477.  doi: 10.1016/j.respol.2004.07.003.  Google Scholar

[5]

S. Bhattacharya, J. Glazer and D. Sappington, Sharing productive knowledge in internally financed R&D contests,, J. Ind. Econ., 39 (1990), 187.  doi: 10.2307/2098493.  Google Scholar

[6]

S. Bhattacharya, J. Glazer and D. Sappington, Licensing and the sharing of knowledge in research joint ventures,, J. Econ. Theory, 56 (1992), 43.  doi: 10.1016/0022-0531(92)90068-S.  Google Scholar

[7]

M. Biancardi, Competition and cooperation in a dynamical model of natural resources,, Nat. Resour. Model., 23 (2010), 79.  doi: 10.1111/j.1939-7445.2009.00057.x.  Google Scholar

[8]

I. Brocas, Optimal regulation of cooperative R&D under incomplete information,, J. Ind. Econ., 52 (2004), 81.  doi: 10.1111/j.0022-1821.2004.00217.x.  Google Scholar

[9]

B. Cassiman, Research joint ventures and optimal R&D policy with asymmetric information,, Int. J. Ind. Organ., 18 (2000), 283.  doi: 10.1016/S0167-7187(98)00013-7.  Google Scholar

[10]

E. Cefis, M. Ghita and A. Sabidussi, Partnerships and innovative patterns in small and medium enterprises,, Int. J. Enterpren. Small Bus., 7 (2009), 431.  doi: 10.1504/IJESB.2009.023360.  Google Scholar

[11]

C. d'Aspremont, S. Bhattacharya and L.-A. Gérard-Varet, Knowledge as a public good: Efficient sharing and incentives for development effort,, J. Math. Econ., 30 (1998), 389.   Google Scholar

[12]

C. d'Aspremont and L.-A. Gérard-Varet, Incentives and incomplete information,, J. Public Econ., 11 (1979), 25.  doi: 10.1016/0047-2727(79)90043-4.  Google Scholar

[13]

C. d'Aspremont and A. Jacquemin, Cooperative and noncooperative R&D in duopoly with spillovers,, Amer. Econ. Rev., 78 (1988), 1133.   Google Scholar

[14]

N. Gandal and S. Scotchmer, Coordinating research through research joint ventures,, J. Public Econ., 51 (1993), 173.  doi: 10.1016/0047-2727(93)90083-6.  Google Scholar

[15]

P. Geroski, Antitrust policy towards co-operative R&D ventures,, Oxford Rev. Econ. Pol., 9 (1992), 58.  doi: 10.1093/oxrep/9.2.58.  Google Scholar

[16]

J. Hagedoorn, Inter-firm R&D partnerships: An overview of major trends and patterns since 1960,, Res. Pol., 31 (2002), 477.  doi: 10.1016/S0048-7333(01)00120-2.  Google Scholar

[17]

G. Hamel, Competition for competence and interpartner learning within international strategic alliances,, Strategic Manage. J., 12 (1991), 83.  doi: 10.1002/smj.4250120908.  Google Scholar

[18]

B. Holmström, Moral hazard in teams,, Bell J. Econ., 13 (1982), 325.   Google Scholar

[19]

A. Jacquemin and L. Soete, Cooperation in R&D, efficiency and european policy,, Europ. Rev., 2 (1994), 65.  doi: 10.1017/S1062798700000909.  Google Scholar

[20]

T. Jorde and D. Teece, Innovation and cooperation: Implications for competition and antitrust,, J. Econ. Perspect., 4 (1990), 75.   Google Scholar

[21]

M. L. Katz, An analysis of cooperative research and development,, RAND J. Econ., 17 (1986), 527.  doi: 10.2307/2555479.  Google Scholar

[22]

M. L. Katz and J. A. Ordover, R&D cooperation and competition,, in, (1990), 137.   Google Scholar

[23]

S. Li and W. Zhang, Optimal assignment of principalship in team,, J. Econ. Behav. Organ., 44 (2001), 105.  doi: 10.1016/S0167-2681(00)00148-7.  Google Scholar

[24]

P. Milgrom and J. Roberts, The economics of modern manufacturing: Technology, strategy, and organization,, Amer. Econ. Rev., 80 (1990), 511.   Google Scholar

[25]

J. Ordover and R. Willig, Antitrust for high-technology industries: Assessing research joint ventures and mergers,, J. Law Econ., 28 (1985), 311.  doi: 10.1086/467087.  Google Scholar

[26]

M. Sakakibara, Heterogeneity of firm capabilities and cooperative research and development: An empirical examination of motives,, Strategic Manage. J., 18 (1997), 143.  doi: 10.1002/(SICI)1097-0266(199707)18:1+<143::AID-SMJ927>3.3.CO;2-P.  Google Scholar

[27]

C. E. Ybarra and T. A. Turk, The evolution of trust in information technology alliances,, J. High Tech. Manag. Res., 20 (2009), 62.  doi: 10.1016/j.hitech.2009.02.003.  Google Scholar

[28]

W. Zhang, "Entrepreneurial Ability, Personal Wealth and the Assignment of Principalship: An Entrepreneurial/Contractual Theory of the Firm,", Ph.D thesis, (1994).   Google Scholar

show all references

References:
[1]

K. Arrow, Economic welfare and the allocation of resources for invention,, in, (1962), 609.   Google Scholar

[2]

K. Arrow, The property rights doctrine and demand revelation under incomplete information,, in, (1979), 23.   Google Scholar

[3]

Y. Bai and G. C. O'Brien, The strategic motives behind firm's engagement in cooperative research and development: A new explanation from four theoretical perspectives,, J. Model. Manage., 3 (2008), 162.  doi: 10.1108/17465660810890135.  Google Scholar

[4]

R. Belderbos, M. Carree and B. Lokshin, Cooperative R&D and firm performance,, Res. Pol., 33 (2004), 1477.  doi: 10.1016/j.respol.2004.07.003.  Google Scholar

[5]

S. Bhattacharya, J. Glazer and D. Sappington, Sharing productive knowledge in internally financed R&D contests,, J. Ind. Econ., 39 (1990), 187.  doi: 10.2307/2098493.  Google Scholar

[6]

S. Bhattacharya, J. Glazer and D. Sappington, Licensing and the sharing of knowledge in research joint ventures,, J. Econ. Theory, 56 (1992), 43.  doi: 10.1016/0022-0531(92)90068-S.  Google Scholar

[7]

M. Biancardi, Competition and cooperation in a dynamical model of natural resources,, Nat. Resour. Model., 23 (2010), 79.  doi: 10.1111/j.1939-7445.2009.00057.x.  Google Scholar

[8]

I. Brocas, Optimal regulation of cooperative R&D under incomplete information,, J. Ind. Econ., 52 (2004), 81.  doi: 10.1111/j.0022-1821.2004.00217.x.  Google Scholar

[9]

B. Cassiman, Research joint ventures and optimal R&D policy with asymmetric information,, Int. J. Ind. Organ., 18 (2000), 283.  doi: 10.1016/S0167-7187(98)00013-7.  Google Scholar

[10]

E. Cefis, M. Ghita and A. Sabidussi, Partnerships and innovative patterns in small and medium enterprises,, Int. J. Enterpren. Small Bus., 7 (2009), 431.  doi: 10.1504/IJESB.2009.023360.  Google Scholar

[11]

C. d'Aspremont, S. Bhattacharya and L.-A. Gérard-Varet, Knowledge as a public good: Efficient sharing and incentives for development effort,, J. Math. Econ., 30 (1998), 389.   Google Scholar

[12]

C. d'Aspremont and L.-A. Gérard-Varet, Incentives and incomplete information,, J. Public Econ., 11 (1979), 25.  doi: 10.1016/0047-2727(79)90043-4.  Google Scholar

[13]

C. d'Aspremont and A. Jacquemin, Cooperative and noncooperative R&D in duopoly with spillovers,, Amer. Econ. Rev., 78 (1988), 1133.   Google Scholar

[14]

N. Gandal and S. Scotchmer, Coordinating research through research joint ventures,, J. Public Econ., 51 (1993), 173.  doi: 10.1016/0047-2727(93)90083-6.  Google Scholar

[15]

P. Geroski, Antitrust policy towards co-operative R&D ventures,, Oxford Rev. Econ. Pol., 9 (1992), 58.  doi: 10.1093/oxrep/9.2.58.  Google Scholar

[16]

J. Hagedoorn, Inter-firm R&D partnerships: An overview of major trends and patterns since 1960,, Res. Pol., 31 (2002), 477.  doi: 10.1016/S0048-7333(01)00120-2.  Google Scholar

[17]

G. Hamel, Competition for competence and interpartner learning within international strategic alliances,, Strategic Manage. J., 12 (1991), 83.  doi: 10.1002/smj.4250120908.  Google Scholar

[18]

B. Holmström, Moral hazard in teams,, Bell J. Econ., 13 (1982), 325.   Google Scholar

[19]

A. Jacquemin and L. Soete, Cooperation in R&D, efficiency and european policy,, Europ. Rev., 2 (1994), 65.  doi: 10.1017/S1062798700000909.  Google Scholar

[20]

T. Jorde and D. Teece, Innovation and cooperation: Implications for competition and antitrust,, J. Econ. Perspect., 4 (1990), 75.   Google Scholar

[21]

M. L. Katz, An analysis of cooperative research and development,, RAND J. Econ., 17 (1986), 527.  doi: 10.2307/2555479.  Google Scholar

[22]

M. L. Katz and J. A. Ordover, R&D cooperation and competition,, in, (1990), 137.   Google Scholar

[23]

S. Li and W. Zhang, Optimal assignment of principalship in team,, J. Econ. Behav. Organ., 44 (2001), 105.  doi: 10.1016/S0167-2681(00)00148-7.  Google Scholar

[24]

P. Milgrom and J. Roberts, The economics of modern manufacturing: Technology, strategy, and organization,, Amer. Econ. Rev., 80 (1990), 511.   Google Scholar

[25]

J. Ordover and R. Willig, Antitrust for high-technology industries: Assessing research joint ventures and mergers,, J. Law Econ., 28 (1985), 311.  doi: 10.1086/467087.  Google Scholar

[26]

M. Sakakibara, Heterogeneity of firm capabilities and cooperative research and development: An empirical examination of motives,, Strategic Manage. J., 18 (1997), 143.  doi: 10.1002/(SICI)1097-0266(199707)18:1+<143::AID-SMJ927>3.3.CO;2-P.  Google Scholar

[27]

C. E. Ybarra and T. A. Turk, The evolution of trust in information technology alliances,, J. High Tech. Manag. Res., 20 (2009), 62.  doi: 10.1016/j.hitech.2009.02.003.  Google Scholar

[28]

W. Zhang, "Entrepreneurial Ability, Personal Wealth and the Assignment of Principalship: An Entrepreneurial/Contractual Theory of the Firm,", Ph.D thesis, (1994).   Google Scholar

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