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Research Collaborations with Sequential Investments
Author(s) -
Lülfesmann Christoph
Publication year - 2004
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.0013-0427.2004.00368.x
Subject(s) - joint venture , outcome (game theory) , equity (law) , corporate governance , business , microeconomics , joint (building) , empirical research , industrial organization , economics , finance , commerce , architectural engineering , philosophy , epistemology , political science , law , engineering
The paper investigates research collaborations where one partner performs R&D at an initial stage whereas the second partner subsequently invests in the success of a joint project. We allow for any degree of uncertainty of the project's success. It is shown that exclusive ownership of one partner necessarily triggers suboptimal initial research even if renegotiation is admitted. Conversely, joint ownership in form of an equity joint venture or a contingent ownership structure (an option‐to‐buy arrangement) may facilitate an efficient outcome. In equilibrium, the initially chosen governance structure is always renegotiated which conforms well with empirical evidence.