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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Contractibility and the Design of Research Agreements |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | American Economic Review |
| Publisher | American Economic Association |
| Geographical Reach | international |
| ISSN | 0002-8282 |
| Volume | 100 |
| Number | 1 |
| Page Range | 214 - 246 |
| Date | 2010 |
| Abstract Text | We analyze how contractibility affects contract design. A major concern when designing research agreements is that researchers use their funding to subsidize other projects. We show that, when research activities are not contractible, an option contract is optimal. The financing firm obtains the option to terminate the agreement and, in case of termination, broad property rights. The threat of termination deters researchers from cross-subsidization, and the cost of exercising the termination option deters the financing firm from opportunistic termination. We test this prediction using 580 biotechnology research agreements. Contracts with termination options are more common when research is non-contractible. |
| Free access at | DOI |
| Digital Object Identifier | 10.1257/aer.100.1.214 |
| Other Identification Number | merlin-id:5945 |
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