DP2698 Optimal Allocation of Ownership Rights in Dynamic R&D Alliances

Author(s):	Stephanie Rosenkranz, Patrick W. Schmitz
Publication Date:	February 2001
Keyword(s):	Incomplete Contracts, Partnerships, Property Rights, R&D Alliances
JEL(s):	L14, L22, O32
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2698

We explore the dynamic evolution of property rights regimes in R&D alliances using the incomplete contract approach pioneered by Grossman, Hart and Moore (Hart and Moore, Journal of Political Economy (1990), and Grossman and Hart, Journal of Political Economy (1986)). In contrast to the standard analysis, the productive asset is an excludable public good such as a patent. Moreover, both firms can decide whether to disclose their know-how and invest effort. Know-how that has once been released cannot be concealed later. We characterize different scenarios in which the optimal ownership structure may change over time due to a trade-off between inducing know-how disclosure and ensuring maximum effort.