Download This PaperAre You the Right Partner? R&D Agreement as a Screening Device
29 Pages Posted: 26 May 2020
Date Written: April 2018
Abstract
This paper focuses on the strategic use of firms’ R&D agreements to overcome R&D inefficiencies under asymmetric information and research spillovers. We introduce a duopoly game where initially one firm is not fully informed on its rival’s R&D productivity. We show that, without R&D agreements, the usual underinvestment problem can be exacerbated by the presence of asymmetric information. However, the R&D agreement can be used strategically as a screening device to assess the true type of the firm with private information, hence solving the inefficiencies generated by asymmetric information. According to the model, firms are more likely to pursuit R&D agreements in presence of similar productivity and less when their productivity gap is high. This is consistent with the empirical findings highlighting the importance of firms’ similarities for R&D collaborations.
Keywords: Asymmetric information; screening; duopoly; R&D investment; R&D spillovers; R&D agreements
JEL Classification: C72; D43; L11; L13; O30
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