Due diligence, research joint ventures, and incentives to innovate
Fabrizi, Simona; Lippert, Steffen
The decision to cooperate within R&D joint ventures is often based on ‘expert advice.’ Such advice typically originates in a due diligence process, which assesses the R&D joint venture’s profitability, for example, by appraising the achievability of synergies. We show that if the experts who advise the owners considering forming an R&D joint venture are also responsible for R&D efforts, they can have incentives to withhold information about the extent of those synergies. Owners optimally react by reducing the incentives to innovate in low-value projects developed within R&D joint ventures and in high-value projects developed within competing research organizations.
Publisher: University of Otago
Series number: 1113
Keywords: Research and development; due diligence; experts' advice; joint venture; synergies; asymmetric information; moral hazard; information withholding (concealing) and revelation
Research Type: Discussion Paper