Individual Preferences, Organization, and Competition in a Model of R&D Incentive Provision

33 Pages Posted: 23 Jan 2008 Last revised: 1 Jul 2014

See all articles by Nicola Lacetera

Nicola Lacetera

University of Toronto - Strategic Management; University of Toronto at Mississauga - Department of Management; National Bureau of Economic Research (NBER)

Lorenzo Zirulia

University of Bologna - School of Economics, Management, and Statistics

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Date Written: February 5, 2008

Abstract

Understanding the organization of R&D activities requires the simultaneous consideration of scientific workers' talent and tastes, companies' organizational choices, and the characteristics of the relevant industry, in particular the competitive pressure. We develop a model of the provision of incentives to corporate scientists, in an environment where (1) scientists engage in multiple activities when performing research; (2) knowledge is not perfectly appropriable; (3) scientists are responsive to both monetary and non-monetary incentives; and (4) firms compete on the product market. We show that the degree of knowledge spillovers and of market competition both affect the incentives given to scientists, and these effects interact. First, high knowledge spillovers lead firms to soften incentives when product market competition is high, and to strengthen incentives when competition is low. Second, the relationship between the intensity of competition and the power of incentives is U-shaped, with the exact shape depending on the degree of knowledge spillovers. We also show that the performance-contingent pay for both applied and basic research increases with the non-pecuniary benefits scientists obtain from research. We discuss the implications of our findings for empirical research as well as for management and public policy.

Keywords: Incentive Pay, Non-Monetary Motives, Knowledge Spillovers, Competition, Innovation

JEL Classification: J32, L13, M12, M52, O31, O32

Suggested Citation

Lacetera, Nicola and Zirulia, Lorenzo, Individual Preferences, Organization, and Competition in a Model of R&D Incentive Provision (February 5, 2008). Available at SSRN: https://ssrn.com/abstract=1086669 or http://dx.doi.org/10.2139/ssrn.1086669

Nicola Lacetera (Contact Author)

University of Toronto - Strategic Management ( email )

Canada

University of Toronto at Mississauga - Department of Management

Canada

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lorenzo Zirulia

University of Bologna - School of Economics, Management, and Statistics ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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