Firm R&D Units and Outsourcing Partners: A Matching Story

Abstract

We present a theory that examines the optimal match between firm R&D units and external partners for projects that involve problem solving. We have a firm selecting an external partner conditional on the learning costs of its internal R&D unit. We show that there exists a matching equilibrium with property that external partners with low learning costs for a project work with R&D units that also have low learning costs for the same project. Empirically, we use a dataset of Spanish R&D firms and relate their share of R&D outsourcing to universities to the composition of their R&D units, described by the presence of staff with a PhD. Our main finding is that, controlling for endogeneity, firms that employ R&D staff with a PhD outsource relatively more to universities than to firms. We interpret this result as evidence that R&D units with relatively low learning costs for basic projects tend to match with external partners, universities, with relatively low learning costs for the same projects.

Keywords: Firm R&D Units, Outsourcing, External Partners, Optimal Matching