Collaboration Dynamics of R&D Teams: Theory and Experiment

Abstract

I explore the dynamics of collaboration between two agents when one is incumbent with well-known ability (resources) and another is an entrant with unobservable ability (resources). If the incumbent is a low-ability type and learns the collaborator’s type based on history, then accumulating the reputation of being a high-ability type will lead to a breakup of the partnership in every equilibrium. If the incumbent is a high-ability type, collaboration is sustainable. However, a low-ability entrant shirks on the equilibrium path, so the first-best outcome is not attainable. I conduct an experiment and find that reputation-building might hinder collaboration.

Keywords: R&D teams, Reputation, free-riding

JEL Classification: C91, D82, D83