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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 and 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 "The Rate and Direction of Inventive Activity: Economic and Social Factors" (ed. R. R. Nelson), Princeton University Press, (1962), 609-626. [2] K. Arrow, The property rights doctrine and demand revelation under incomplete information, in "Economics and Human Welfare: Essays in Honor of Tibor Scitovsky" (ed. M. J. Boskin), Academic Press, (1979), 23-39. [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), 162-181. doi: 10.1108/17465660810890135. [4] R. Belderbos, M. Carree and B. Lokshin, Cooperative R&D and firm performance, Res. Pol., 33 (2004), 1477-1492. doi: 10.1016/j.respol.2004.07.003. [5] S. Bhattacharya, J. Glazer and D. Sappington, Sharing productive knowledge in internally financed R&D contests, J. Ind. Econ., 39 (1990), 187-208. doi: 10.2307/2098493. [6] S. Bhattacharya, J. Glazer and D. Sappington, Licensing and the sharing of knowledge in research joint ventures, J. Econ. Theory, 56 (1992), 43-69. doi: 10.1016/0022-0531(92)90068-S. [7] M. Biancardi, Competition and cooperation in a dynamical model of natural resources, Nat. Resour. Model., 23 (2010), 79-106. doi: 10.1111/j.1939-7445.2009.00057.x. [8] I. Brocas, Optimal regulation of cooperative R&D under incomplete information, J. Ind. Econ., 52 (2004), 81-119. doi: 10.1111/j.0022-1821.2004.00217.x. [9] B. Cassiman, Research joint ventures and optimal R&D policy with asymmetric information, Int. J. Ind. Organ., 18 (2000), 283-314. doi: 10.1016/S0167-7187(98)00013-7. [10] E. Cefis, M. Ghita and A. Sabidussi, Partnerships and innovative patterns in small and medium enterprises, Int. J. Enterpren. Small Bus., 7 (2009), 431-445. doi: 10.1504/IJESB.2009.023360. [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), 389-404. [12] C. d'Aspremont and L.-A. Gérard-Varet, Incentives and incomplete information, J. Public Econ., 11 (1979), 25-45. doi: 10.1016/0047-2727(79)90043-4. [13] C. d'Aspremont and A. Jacquemin, Cooperative and noncooperative R&D in duopoly with spillovers, Amer. Econ. Rev., 78 (1988), 1133-1137. [14] N. Gandal and S. Scotchmer, Coordinating research through research joint ventures, J. Public Econ., 51 (1993), 173-193. doi: 10.1016/0047-2727(93)90083-6. [15] P. Geroski, Antitrust policy towards co-operative R&D ventures, Oxford Rev. Econ. Pol., 9 (1992), 58-71. doi: 10.1093/oxrep/9.2.58. [16] J. Hagedoorn, Inter-firm R&D partnerships: An overview of major trends and patterns since 1960, Res. Pol., 31 (2002), 477-492. doi: 10.1016/S0048-7333(01)00120-2. [17] G. Hamel, Competition for competence and interpartner learning within international strategic alliances, Strategic Manage. J., 12 (1991), 83-103. doi: 10.1002/smj.4250120908. [18] B. Holmström, Moral hazard in teams, Bell J. Econ., 13 (1982), 325-340. [19] A. Jacquemin and L. Soete, Cooperation in R&D, efficiency and european policy, Europ. Rev., 2 (1994), 65-72. doi: 10.1017/S1062798700000909. [20] T. Jorde and D. Teece, Innovation and cooperation: Implications for competition and antitrust, J. Econ. Perspect., 4 (1990), 75-96. [21] M. L. Katz, An analysis of cooperative research and development, RAND J. Econ., 17 (1986), 527-543. doi: 10.2307/2555479. [22] M. L. Katz and J. A. Ordover, R&D cooperation and competition, in "Brookings Papers on Economic Activity: Macroeconomics" (eds. M. N. Baily and C. M. Winston), Brookings Institution Press, (1990), 137-203. [23] S. Li and W. Zhang, Optimal assignment of principalship in team, J. Econ. Behav. Organ., 44 (2001), 105-127. doi: 10.1016/S0167-2681(00)00148-7. [24] P. Milgrom and J. Roberts, The economics of modern manufacturing: Technology, strategy, and organization, Amer. Econ. Rev., 80 (1990), 511-528. [25] J. Ordover and R. Willig, Antitrust for high-technology industries: Assessing research joint ventures and mergers, J. Law Econ., 28 (1985), 311-333. doi: 10.1086/467087. [26] M. Sakakibara, Heterogeneity of firm capabilities and cooperative research and development: An empirical examination of motives, Strategic Manage. J., 18 (1997), 143-164. doi: 10.1002/(SICI)1097-0266(199707)18:1+<143::AID-SMJ927>3.3.CO;2-P. [27] C. E. Ybarra and T. A. Turk, The evolution of trust in information technology alliances, J. High Tech. Manag. Res., 20 (2009), 62-74. doi: 10.1016/j.hitech.2009.02.003. [28] W. Zhang, "Entrepreneurial Ability, Personal Wealth and the Assignment of Principalship: An Entrepreneurial/Contractual Theory of the Firm," Ph.D thesis, Oxford University, 1994.

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References:
 [1] K. Arrow, Economic welfare and the allocation of resources for invention, in "The Rate and Direction of Inventive Activity: Economic and Social Factors" (ed. R. R. Nelson), Princeton University Press, (1962), 609-626. [2] K. Arrow, The property rights doctrine and demand revelation under incomplete information, in "Economics and Human Welfare: Essays in Honor of Tibor Scitovsky" (ed. M. J. Boskin), Academic Press, (1979), 23-39. [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), 162-181. doi: 10.1108/17465660810890135. [4] R. Belderbos, M. Carree and B. Lokshin, Cooperative R&D and firm performance, Res. Pol., 33 (2004), 1477-1492. doi: 10.1016/j.respol.2004.07.003. [5] S. Bhattacharya, J. Glazer and D. Sappington, Sharing productive knowledge in internally financed R&D contests, J. Ind. Econ., 39 (1990), 187-208. doi: 10.2307/2098493. [6] S. Bhattacharya, J. Glazer and D. Sappington, Licensing and the sharing of knowledge in research joint ventures, J. Econ. Theory, 56 (1992), 43-69. doi: 10.1016/0022-0531(92)90068-S. [7] M. Biancardi, Competition and cooperation in a dynamical model of natural resources, Nat. Resour. Model., 23 (2010), 79-106. doi: 10.1111/j.1939-7445.2009.00057.x. [8] I. Brocas, Optimal regulation of cooperative R&D under incomplete information, J. Ind. Econ., 52 (2004), 81-119. doi: 10.1111/j.0022-1821.2004.00217.x. [9] B. Cassiman, Research joint ventures and optimal R&D policy with asymmetric information, Int. J. Ind. Organ., 18 (2000), 283-314. doi: 10.1016/S0167-7187(98)00013-7. [10] E. Cefis, M. Ghita and A. Sabidussi, Partnerships and innovative patterns in small and medium enterprises, Int. J. Enterpren. Small Bus., 7 (2009), 431-445. doi: 10.1504/IJESB.2009.023360. [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), 389-404. [12] C. d'Aspremont and L.-A. Gérard-Varet, Incentives and incomplete information, J. Public Econ., 11 (1979), 25-45. doi: 10.1016/0047-2727(79)90043-4. [13] C. d'Aspremont and A. Jacquemin, Cooperative and noncooperative R&D in duopoly with spillovers, Amer. Econ. Rev., 78 (1988), 1133-1137. [14] N. Gandal and S. Scotchmer, Coordinating research through research joint ventures, J. Public Econ., 51 (1993), 173-193. doi: 10.1016/0047-2727(93)90083-6. [15] P. Geroski, Antitrust policy towards co-operative R&D ventures, Oxford Rev. Econ. Pol., 9 (1992), 58-71. doi: 10.1093/oxrep/9.2.58. [16] J. Hagedoorn, Inter-firm R&D partnerships: An overview of major trends and patterns since 1960, Res. Pol., 31 (2002), 477-492. doi: 10.1016/S0048-7333(01)00120-2. [17] G. Hamel, Competition for competence and interpartner learning within international strategic alliances, Strategic Manage. J., 12 (1991), 83-103. doi: 10.1002/smj.4250120908. [18] B. Holmström, Moral hazard in teams, Bell J. Econ., 13 (1982), 325-340. [19] A. Jacquemin and L. Soete, Cooperation in R&D, efficiency and european policy, Europ. Rev., 2 (1994), 65-72. doi: 10.1017/S1062798700000909. [20] T. Jorde and D. Teece, Innovation and cooperation: Implications for competition and antitrust, J. Econ. Perspect., 4 (1990), 75-96. [21] M. L. Katz, An analysis of cooperative research and development, RAND J. Econ., 17 (1986), 527-543. doi: 10.2307/2555479. [22] M. L. Katz and J. A. Ordover, R&D cooperation and competition, in "Brookings Papers on Economic Activity: Macroeconomics" (eds. M. N. Baily and C. M. Winston), Brookings Institution Press, (1990), 137-203. [23] S. Li and W. Zhang, Optimal assignment of principalship in team, J. Econ. Behav. Organ., 44 (2001), 105-127. doi: 10.1016/S0167-2681(00)00148-7. [24] P. Milgrom and J. Roberts, The economics of modern manufacturing: Technology, strategy, and organization, Amer. Econ. Rev., 80 (1990), 511-528. [25] J. Ordover and R. Willig, Antitrust for high-technology industries: Assessing research joint ventures and mergers, J. Law Econ., 28 (1985), 311-333. doi: 10.1086/467087. [26] M. Sakakibara, Heterogeneity of firm capabilities and cooperative research and development: An empirical examination of motives, Strategic Manage. J., 18 (1997), 143-164. doi: 10.1002/(SICI)1097-0266(199707)18:1+<143::AID-SMJ927>3.3.CO;2-P. [27] C. E. Ybarra and T. A. Turk, The evolution of trust in information technology alliances, J. High Tech. Manag. Res., 20 (2009), 62-74. doi: 10.1016/j.hitech.2009.02.003. [28] W. Zhang, "Entrepreneurial Ability, Personal Wealth and the Assignment of Principalship: An Entrepreneurial/Contractual Theory of the Firm," Ph.D thesis, Oxford University, 1994.
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