Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22948
Authors: 
Goldfayn, Ekaterina
Year of Publication: 
2006
Series/Report no.: 
Bonn econ discussion papers 2006,3
Abstract: 
In order to deliver an innovation principals employ competing agents in some circumstances, while employing research team in other circumstances. This paper compares various structures of R&D to provide a rational behind this observation. It is assumed, that the principal can employ either one agent, two competing agents or two agents, cooperating in a team. Which of the available structures will be chosen by principal, depends on value of prize in stake, technological benefits of team production and team structure. Due to the positive effect on incentives, competing agents always generate larger profit to the principal, than a single agent. Further, they often perform better than the team, even when the latter has significant technological benefits. However, the performance of the team may be improved, if it is organized as a hierarchy with the team leader (who is responsible for allocation of resources) and his subordinate. The paper provides conditions on parameters, which determine whether the principal should employ a team or competing agents for performing R&D.
Subjects: 
moral hazard
hierarchy
team production
competition
organization of R&D
JEL: 
C72
L23
O31
Document Type: 
Working Paper

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