Outsourcing, Contracts and Innovation Networks

32 Pages Posted: 22 Jun 2006

See all articles by Gianmarco I.P. Ottaviano

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Alireza Naghavi

University of Bologna - Department of Economics

Date Written: May 2006

Abstract

We study the decision of firms between vertical integration and outsourcing in a dynamic setting with product innovation. In so doing, we model an industry in which R&D is performed by independent research labs and outsourcing production requires complementary upstream and downstream inventions. In the presence of search friction and incomplete outsourcing contracts, we show that the ex-post bargaining power of upstream and downstream parties at the production stage feeds back to R&D incentives, thus affecting the emergence and the performance of labs specialized in complementary inventions.

Keywords: Innovation, incomplete contracts, outsourcing

JEL Classification: F12, F23

Suggested Citation

Ottaviano, Gianmarco I.P. and Naghavi, Alireza, Outsourcing, Contracts and Innovation Networks (May 2006). CEPR Discussion Paper No. 5681, Available at SSRN: https://ssrn.com/abstract=911282

Gianmarco I.P. Ottaviano (Contact Author)

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

Alireza Naghavi

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy

HOME PAGE: http://alirezanaghavi.altervista.org/

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