The Management of Innovation: Experimental Evidence

We report data from a laboratory experiment with 566 participants that was designed to test Aghion and Tirole's (1994a) management of innovation theory. A research unit and a customer can invest to increase the probability of making an innovation. When the innovation is made, the parties bargain over the division of the revenue. In line with Aghion and Tirole's (1994a) predictions based on the Grossman-Hart-Moore property rights approach, we find that ownership matters for the division of the revenue and the investments. However, communication can somewhat mitigate the theoretical problem that the customer will not relinquish ownership to the cash-constrained research unit.

[1]  J. Tirole,et al.  The Management of Innovation , 1994 .

[2]  Yan Chen,et al.  A day without a search engine: an experimental study of online and offline searches , 2014 .

[3]  Daniel L. Chen,et al.  oTree - An Open-Source Platform for Laboratory, Online, and Field Experiments , 2016 .

[4]  Ryan O. Murphy,et al.  Measuring Social Value Orientation , 2011, SSRN Electronic Journal.

[5]  Erte Xiao,et al.  Classification of natural language messages using a coordination game , 2011 .

[6]  U. Fischbacher.  z-Tree: Zurich toolbox for ready-made economic experiments , 1999 .

[7]  A. Rubinstein.  Perfect Equilibrium in a Bargaining Model , 1982 .

[8]  J. Sonnemans,et al.  On the Relation between Asset Ownership and Specific Investments , 1999 .

[9]  Oliver Hart,et al.  Firms, contracts, and financial structure , 1995 .

[10]  On the Relation between Asset Ownership and Specific Investments , 1999 .

[11]  Eva I. Hoppe,et al.  Can Contracts Solve the Hold-Up Problem? Experimental Evidence , 2010 .

[12]  Steven C. Hackett,et al.  Incomplete Contracting: A Laboratory Experimental Analysis , 1993 .

[13]  Maija Halonen-Akatwijuka,et al.  Reputation and Ownership of Public Goods , 2009 .

[14]  V. Smith,et al.  Preferences, Property Rights, and Anonymity in Bargaining Games , 1994 .

[15]  Ilya Segal,et al.  Property Rights , 2010 .

[16]  C. Woodruff,et al.  Non-Contractible Investments and Vertical Integration in the Mexican Footwear Industry , 2001 .

[17]  Jordi Brandts,et al.  Let's Talk: How Communication Affects Contract Design , 2012, SSRN Electronic Journal.

[18]  Maija Halonen,et al.  Reputation and Allocation of Ownership , 1995 .

[19]  Anjan V. Thakor,et al.  Firms, Contracts and Financial Structures. , 1996 .

[20]  Steven D. Levitt,et al.  What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World , 2007 .

[21]  Y. Stephen Chiu,et al.  Noncooperative Bargaining, Hostages, and Optimal Asset Ownership , 1998 .

[22]  Ma Erlei,et al.  Endogenous Property Rights in a Hold‐Up Experiment , 2014 .

[23]  M. Johannesson,et al.  Promises, Threats and Fairness , 2004 .

[24]  O. Williamson.  The New Institutional Economics: Taking Stock, Looking Ahead , 2000 .

[25]  O. Hart,et al.  Property Rights and the Nature of the Firm , 1988, Journal of Political Economy.

[26]  Ernst Fehr,et al.  Fairness and the Optimal Allocation of Ownership Rights , 2005, SSRN Electronic Journal.

[27]  Andrew Seltzer,et al.  Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model , 2011 .

[28]  Jean Tirole,et al.  Incomplete contracts: Where do we stand? , 1999 .

[29]  P. Aghion,et al.  The Impact of Incomplete Contracts on Economics , 2016 .

[30]  Philippe Aghion,et al.  Opening the black box of innovation , 1994 .

[31]  Philippe Aghion,et al.  Financial Valuation and Risk Management Working Paper No . 435 Vertical Integration and Technology : Theory and Evidence , 2007 .

[32]  Patrick W. Schmitz,et al.  Investments as Signals of Outside Options , 2011, J. Econ. Theory.

[33]  Maroš Servátka,et al.  Group Identity and Relation-Specific Investment: An Experimental Investigation , 2011 .

[34]  Ben Greiner,et al.  An Online Recruitment System for Economic Experiments , 2004 .

[35]  Claudia M. Landeo,et al.  Naked Exclusion: An Experimental Study of Contracts with Externalities , 2008 .

[36]  O. Hart,et al.  Incomplete Contracts and Renegotiation , 1988 .

[37]  Paolo Crosetto,et al.  A Flexible z-Tree Implementation of the Social Value Orientation Slider Measure (Murphy et al. 2011) – Manual , 2012 .

[38]  Ben Lockwood,et al.  Does Asset Ownership Always Motivate Managers? Outside Options and the Property Rights Theory of the Firm , 1998 .

[39]  Non-Contractible Investments and Vertical Integration in the Mexican Footwear Industry , 2002 .

[40]  Martin Dufwenberg,et al.  Promises and Partnership , 2006 .

[41]  M. Dufwenberg,et al.  Hold‐Up: With a Vengeance , 2013 .

[42]  A. Muthoo.  Bargaining Theory with Applications , 1999 .

[43]  Simin He,et al.  The Sources of the Communication Gap , 2015, Manag. Sci..

[44]  Klaus M. Schmidt,et al.  The Economics of Fairness, Reciprocity and Altruism--Experimental Evidence and New Theories. , 2005 .

[45]  Sanford J. Grossman,et al.  The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration , 1986 .

[46]  Justin M. Rao,et al.  The Power of Asking: How Communication Affects Selfishness, Empathy, and Altruism , 2010 .

[47]  Daniel Houser,et al.  Emotion expression in human punishment behavior. , 2005, Proceedings of the National Academy of Sciences of the United States of America.

[48]  P. Schmitz.  Information Gathering, Transaction Costs, and the Property Rights Approach , 2005 .

[49]  Tore Ellingsen,et al.  Is There a Hold – up Problem ? , 2000 .

[50]  Michael D. Whinston,et al.  On the Transaction Cost Determinants of Vertical Integration , 2003 .