Paper #264

Title:

Influence activity and the organization of research and development

Author:

Bruno Cassiman

Date:

June 1996 (Revised: December 1997)

Abstract:

The organizational design of research and development conditions the incentives of the researchers of the research project. In particular, the organizational form determines the allocation of effort of the researcher between time spent on research and time spent lobbying m anagement. Researchers prefer to spend their time on research. However, the researchers only get utility from performing research if the project is approved for its full duration. Spending time lobbying management for the continuation of the researcher’s project increases the probability that the management observes a favorable signal about the project. Organizing a research joint venture increases the flexibility of the organizational form with respect to the continuation decision. For low correlation between the signals of the partners about the expected profitability of the project, we find that the organization of a research joint venture reduces influence activity by the researchers and increases expected profits of the partners. For high correlation between the signals, internal research projects lower influence activity by the researchers. We try to relate the correlation of the partners signals to the characteristics of basic research versus more applied research projects, and find that the model is consistent with the observation that research joint ventures seem involved in more basic research projects compared to internal R&D departments, which concentrate on more applied research.

Keywords:

Research joint ventures, influence activity, signal jamming, incomplete contracts

JEL codes:

D82, L13, L50, O38

Area of Research:

Business Economics and Industrial Organization

Download the paper in PDF format