Working Paper: NBER ID: w17031
Authors: Nicola Lacetera; Lorenzo Zirulia
Abstract: Understanding the organization of R&D activities requires the simultaneous consideration of scientific workers' talent and tastes, companies' organizational choices, and the characteristics of the relevant industry. We develop a model of the provision of incentives to corporate scientists, in an environment where (1) scientists engage in multiple activities when performing research; (2) knowledge is not perfectly appropriable; (3) scientists are responsive to both monetary and non-monetary incentives; and (4) firms compete on the product market. We show that both the degree of knowledge spillovers and of market competition affect the incentives given to scientists, and these effects interact. First, high knowledge spillovers lead firms to soften incentives when product market competition is high, and to strengthen incentives when competition is low. Second, the relationship between the intensity of competition and the power of incentives is U-shaped, with the exact shape depending on the degree of knowledge spillovers. We also show that the performance-contingent pay for both applied and basic research increases with the non-pecuniary benefits that scientists obtain from research. We relate our findings to the existing empirical research, and also discuss their implications for management and public policy.
Keywords: R&D; incentives; competition; knowledge spillovers; scientific workers
JEL Codes: L1; L22; M12; O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High knowledge spillovers (O36) | Soften incentives when product market competition is high (L13) |
| High knowledge spillovers (O36) | Strengthen incentives when product market competition is low (L13) |
| Intensity of competition (L13) | Power of incentives (O31) |
| Degree of knowledge spillovers (O36) | Shape of the relationship between intensity of competition and power of incentives (D43) |
| Nonpecuniary benefits from research (J32) | Performance-contingent pay increases for applied and basic research (M52) |