A Study On The Efficiency In R&D Based On The Theory Of The Incomplete Contract

Research and development (R & D), which is the origin of technological innovation, is the core of the innovative activity of the firm. The firm, research unit or the research staff who are contacted together by the contract are the principal parts in the process of R&D. The research contract has some specialities compared with the contract of the instantaneous realization of market transactions.The research contract is a kind of contract which the contracted parties promise to trade in the future. The firm or the research staff will make an investment ex-post contract in order to increase the surplus of the R&D cooperation. The research contract is always incomplete because the state of the nature is uncertain in the future, the contracted cost is very great for the complex contracted condition, the knowledge of the technological innovation include the contractible explicit knowledge and the non-contractible tacit knowledge, the foundation of the contract is unconfirmed by the third party, the cost of the fulfillment of the contract is costly. The allocation of the property rights is different with the allocation in the classical holdup problem, which consists of the arrangement of the physical assets and the arrangement of the innovation intellectual property rights. The choices of the investment by the research parts are affected by the allocation of the assets of the research and development platform, technological innovation intellectual property rights and the contractibility of the knowledge of the technological innovation according to the theory of the incomplete contract. Moreover, The centre problem of the technology transfer is the knowledge transfer including the contractible explicit knowledge and the non-contractible tacit knowledge. The intellectual property rights can not be protected by the property rights because the boundary of the innovation knowledge is slurred, including the contractible explicit knowledge and the non-contractible tacit knowledge. The transfer of the tacit knowledge will affect the transfer efficiency of the fruits of the innovation. When the contracted part thinks that he gets what he is entitled to relative to outcomes permitted by the contract, he can provide all the innovative knowledge and then the ex-ante contract provides a reference points for the future trading relationship.The paper studied the efficiency of the ex-ante investment and the efficiency of the ex-post technology transfer by the research method of the theory of the incomplete contract based on the context of the R&D management.The problem of the ex-ante investment efficiency was divided into two aspects. The first is about the training investment incentives of the research staff. The paper analyzed the model of the investment incentives in the different bargaining rules. And then in the context of the R&D management, the paper studied the selfish training investment incentives of human capital and the cooperative training investment incentives of human capital from two aspects including status point and the threat point. The second is about the problem of the investment incentives of the ex-ante R&D efforts. The paper analyzed relationship between the ex-post moral hazard and the incentives of technological innovation in the conditions when there is wealth constraint by the research unit and there isn’t wealth constraint. Then the paper analyzed the affection of the allocation of the intellectual property rights to the investment incentives of the ex-ante R&D efforts.For the selfish-investment of the human capital, when the researcher’s outside option is threat point and the extent of the relationship specific investment k>0.5, the investment is higher but also is insufficient. And when the outside option of the firm is threat point, the researcher may make the best investment. If the both outside options are not treated as the constraints, the investment level of the researcher is lower than the best investment level.But for the cooperative investment of the human capital, there is always insufficient investment compared to the best investment level, which is irrelevant to the allocation of the physical assets or the rules of the bargaining. The investment level of the human capital will increase if the physical asset is allocated to the researcher.In a standard hold-up problem, the investing party typically has insufficient incentives to invest compared to the first-best solution. Moreover, the investments are increasing in the research unit’s bargaining power. These basic insights are also true when after the investment stage unobservable effort must be exerted to generate a surplus, provided there are no liability constraints. Yet, in the presence of limited liability, there may be overinvestment and the investments may decrease in the researcher’s bargaining power. In the presence of limited liability, even when the firm has all the bargaining power, it cannot extract the total surplus at date 2, since it must leave a rent to researcher in order to induce high effort.The paper argued that there were always inefficiencies of ex-ante R&D Investment in the situations of incomplete contracts. The researcher may enhance his investment level if there is VC. But the higher of the content of the innovative knowledge spillover, the lower is the level of specific investment made by researcher. The level of investment made by researcher in the context of the complete specific technology is higher than in the context of the general technology, but the researcher can gain part of the ex-post quasi-rent through bargainingThe problem of the ex-post efficiency is about the study of the affection of the holdup on the technology transfer. The paper constructed a model to study the affection of the holdup behavior on the ex-post technology transfer efficiency. Then the paper discussed the problem of the technology transfer from the viewpoints of the contract design and the arrangement of the property rights.The centre problem of the technology transfer is the knowledge transfer including the contractible explicit knowledge and the non-contractible tacit knowledge. The character of uncontractiblity of knowledge affects the efficiency of technology transfer. The paper discussed the efficiency of technology transfer and the ownership governance mechanism in the R&D management from the viewpoint of incomplete contracts. The loss of efficiency couldn’t be avoided during ex-post exchange because of the uncontractiblity of technology knowledge.The paper argued that when the uncertainty of the value and cost of R&D is greater, the likelihood of opportunistic action of holdup is less when the integration by factor contract and the property right of innovation belong to the principal.The paper tested the above models using the numerical examples and case analysis. The paper reviewed the research literatures which are about the holdup problem in the incomplete contract and the problem of the efficiency of the R&D. Then paper proposed the research problem of the paper. At last, the paper summarized the research paper and proposed the lack of the paper and the direct of the future research.