Contractibility and the Design of Research Agreements

  title={Contractibility and the Design of Research Agreements},
  author={Josh Lerner and Ulrike Malmendier},
We analyze how contractibility affects contract design. A major concern when designing research agreements is that researchers may use their funding to subsidize other projects. We show that, when research activities are not contractible, an option contract is optimal. The financing firm obtains the option to terminate the agreement and, in case of termination, broad property rights. The threat of termination deters researchers from cross-subsidization, and the cost of exercising the… CONTINUE READING
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