Influence Activity and the Organization of Research and Development

The organizational design of research and development conditions the incentives of the researchers of the research project. In particular, the organizational form determines the allocation of effort of the researcher between time spent on research and time spent lobbying management. Researchers prefer to spend their time on research. However, the researchers only get utility from performing research if the project is approved for its full duration. Spending time lobbying management for the continuation of the researcher’s project increases the probability that the management observes a favorable signal about the project. Organizing a research joint venture increases the flexibility of the organizational form with respect to the continuation decision. For low correlation between the signals of the partners about the expected profitability of the project, we find that the organization of a research joint venture reduces influence activity by the researchers and increases expected profits of the partners compared to internal research projects. For high correlation between the signals, this result is reversed. JEL: D23, D82, L22, O32