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- Title
Incentive contracts under product market competition and R&D spillovers.
- Authors
Chalioti, Evangelia
- Abstract
This paper studies cost-reducing R&D incentives in a principal-agent model with product market competition. It argues that moral hazard does not necessarily decrease firms' profits in this setting. In highly competitive industries, firms are driven by business-stealing incentives and exert such high levels of R&D that they burn up their profits. In the presence of moral hazard, underprovision of R&D incentives due to risk sharing can generate considerable cost savings, implying higher profits for both rivals. This result indicates firms' incentives to adopt collusive-like behavior in the R&D market. We also examine the agents' contracts and the profits-risk relationship when cross-firm R&D spillovers occur.
- Subjects
LABOR incentives; ECONOMIC competition; RESEARCH &; development; EXTERNALITIES; ORGANIZATIONAL performance
- Publication
Economic Theory, 2015, Vol 58, Issue 2, p305
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-014-0811-5