Moral Hazard and the Internal Organization of Joint Research

Revised 2006-06

This paper analyzes the impact of agency problems on two entrepreneurs’ choice whether to carry out a stand-alone or a joint project. A joint project can be conducted by a single or both entrepreneurs’ research units, which are substitutes to a varying degree. Joint projects are chosen when they are of high value and/or for low degrees of duplication and complementarities between the units. Agency problems reduce the occurrence of joint projects as they have to be of higher value and/or exploit higher synergies. Joint projects making use of potential synergies are chosen too seldomly from a welfare standpoint.