| High-technology firms are increasingly outsourcing strategically critical product development activities to external suppliers of innovation. Incomplete contracts, non-redeployable investments, lengthy time horizons, and measurement difficulties in development relationships create a need for the outsourcing firm to safeguard its relationship specific assets against supplier opportunism. However, a conflict arises in that the traditional safeguard---decision-making control over the supplier's activities---may limit supplier creativity and innovation. I suggest that outsourcing firms will reduce their decision-making control as development activities require greater creativity and require skills more distant from those of the outsourcing firm. Instead, as these factors increase, outsourcing firms will look to align supplier incentives by sharing property rights---ownership, usage, or revenue sharing---over the innovation produced as a means of safeguarding relationship specific investments. These and additional hypotheses are empirically tested on a cross-industry sample of firms in the high-technology arena. |
