On the Firms' Decision to Hire Academic Scientists
Abstract
This paper analyses the firms’ incentives to invest in scientific research, and the optimal contracting of scientists capable of producing abstract knowledge. Each scientist is characterized by her scientific ability which... [ view full abstract ]
This paper analyses the firms’ incentives to invest in scientific research, and the optimal contracting of scientists capable of producing abstract knowledge. Each scientist is characterized by her scientific ability which can increase the value of her outside option. When hired, she follows distinct research agenda, her own basic research and the firm’s applied research, which leads to potential conflict of interests as only the time spent on applied research is valuable to the firm. When the reservation utility is not type-dependent, the firms always select the scientist with the highest ability. This result remains valid under moral hazard and adverse selection. When the reservation utility is type dependent, firms may select a scientist with a lower ability. Moral hazard is not a deterrent per se. It is a deterrent when the firm cannot make scientists residual claimant. So the loss in welfare is due to contracting issues rather than the presence of moral hazard. Adverse selection can lead to under-investment because to ensure incentive compatibility the firm must allow scientists to dedicate time to their own agenda in increasing proportion to their ability. In equilibrium they require that the scientists spend too much time on their own agenda.
Authors
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Sarah Parlane
(ucd)
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Catalina Martinez
(Institute of Public Goods and Policies, CSIC-IPP, Madrid)
Topic Areas
Microeconomics , Industrial Organisation
Session
1A » Industrial Organisation & Game Theory (09:00 - Thursday, 4th May, Meeting Room 1)
Paper
ParlaneMartinezIEA2017.pdf
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