Contract Enforcement and R&D Investment

37 Pages Posted: 22 Jun 2013

See all articles by Michael Seitz

Michael Seitz

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics

Martin Watzinger

Ludwig Maximilian University of Munich (LMU)

Date Written: June 22, 2013

Abstract

Motivated by the differences in innovation intensity across countries, this paper evaluates the role of contract enforcement for R&D investments. If contracts for inputs are incomplete and contract enforcement is weak, innovative companies can be exploited by their suppliers. This reduces the incentive to invest in R&D. We find evidence supporting this prediction in the data: R&D investment increases with the quality of the judicial system and this effect is particularly strong in industries that depend more on bilateral contracts to acquire inputs and in which vertical integration is not a viable option.

Keywords: R&D Investment, Contract Enforcement, Legal Institutions

JEL Classification: O30, O43, P48

Suggested Citation

Seitz, Michael and Watzinger, Martin, Contract Enforcement and R&D Investment (June 22, 2013). Available at SSRN: https://ssrn.com/abstract=2283576 or http://dx.doi.org/10.2139/ssrn.2283576

Michael Seitz

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Martin Watzinger (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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