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Different Missions and Commitment Power in R&D Organizations: Theory and Evidence on Industry-University Alliances

Department of Economics, Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106
nxl51{at}case.edu

This paper proposes a theory for why firms conduct some research activities in-house but outsource other projects to independent partners and for why firms retain different degrees of control over collaborative research projects. The focus is on the determinants of a company's choice to outsource research projects to academic organizations. Because of the different institutional missions of academic organizations, outsourcing a project to a university allows a firm to commit not to terminate or alter a scientifically valuable project before it is complete. This commitment is potentially valuable for the firm in an environment where scientific value and economic value may not coincide, and scientific workers are responsive to the incentives defined by their community of peers. An economic model that formalizes these arguments is developed. Empirical hypotheses are then formulated about the kind of research activities firms will outsource to universities and activities on which they will exert stronger control. Evidence from a sample of industry-university research agreements, as well as from other large-sample and case studies, shows patterns consistent with the predictions of the model.

Key Words: R&D organization; firm boundaries; industry-university relations