Outsourcing, Contracts and Innovation Networks
Gianmarco I.P. Ottaviano
Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation
University of Bologna - Department of Economics
CEPR Discussion Paper No. 5681
We study the decision of firms between vertical integration and outsourcing in a dynamic setting with product innovation. In so doing, we model an industry in which R&D is performed by independent research labs and outsourcing production requires complementary upstream and downstream inventions. In the presence of search friction and incomplete outsourcing contracts, we show that the ex-post bargaining power of upstream and downstream parties at the production stage feeds back to R&D incentives, thus affecting the emergence and the performance of labs specialized in complementary inventions.
Number of Pages in PDF File: 32
Keywords: Innovation, incomplete contracts, outsourcing
JEL Classification: F12, F23working papers series
Date posted: June 22, 2006
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 1.047 seconds