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A Dynamic Model of Research Contracting

Author

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  • Joel Balbien
  • Louis L. Wilde
Abstract
This article analyzes the behavior of a single firm that is engaged in R&D for a "sponsor." We show that contractual forms that provide good incentives in a static environment may introduce incentive problems in a dynamic setting. More specifically, we show that a firm engaged in a sequence of R&D contracts is more likely to do research: (1) the lower are the costs of R&D, (2) the better is the state of sponsor knowledge, and (3) the longer is the sequence of contracts (given an appropriately high discount factor). We also show that the firm reveals a larger share of its results: (1) the better is the state of sponsor knowledge, (2) the better is the state of private knowledge possessed by the firm, and (3) the shorter is the sequence of contracts.

Suggested Citation

  • Joel Balbien & Louis L. Wilde, 1982. "A Dynamic Model of Research Contracting," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 107-119, Spring.
    • Handle: RePEc:rje:bellje:v:13:y:1982:i:spring:p:107-119
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    Cited by:

    1. Tannista Banerjee & Ralph Siebert, 2013. "The Impact of R&D Cooperation on Drug Variety Offered on the Market: Evidence from the Pharmaceutical Industry," Auburn Economics Working Paper Series auwp2013-20, Department of Economics, Auburn University.
    2. Goldfarb, Brent, 2008. "The effect of government contracting on academic research: Does the source of funding affect scientific output," Research Policy, Elsevier, vol. 37(1), pages 41-58, February.

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