Claremont Colleges Working Papers in Economics 2001-24
We use a simple model of collaborative innovation to structure an empirical analysis of minority equity links in biotechnology alliances between clients and R&D firms. In the model, an equity link is an investment in information acquisition: it improves the ability of the client to learn about the R&D firms ability and the alliance projects quality. The model generates several testable hypotheses about how the R&D firms project characteristics and previous alliances affect the use of equity links in new alliances. We test the hypotheses using a large data set of biotechnology alliances and find empirical support.