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Information leakage in innovation outsourcing
Author(s) -
Ho Shirley J.
Publication year - 2009
Publication title -
randd management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.253
H-Index - 102
eISSN - 1467-9310
pISSN - 0033-6807
DOI - 10.1111/j.1467-9310.2009.00574.x
Subject(s) - interim , information leakage , leakage (economics) , outsourcing , microeconomics , business , information asymmetry , complete information , industrial organization , revenue , database transaction , nash equilibrium , economics , finance , marketing , computer science , computer security , history , archaeology , programming language , macroeconomics
This paper studies an R&D outsourcing contract between a firm and a contractor, considering the possibility that in the interim stage, the contractor might sell the innovation to a rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage‐free contract does not exist. This result will also apply to cases considering revenue‐sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.