A comparison of Milestone-based and buyout options contracts for coordinating R&D partnerships

摘要: We analyze optimal contractual arrangements in a bilateral research and development (R&D) partnership between risk-averse provider that conducts early-stage followed by regulatory verification stage risk-neutral client performs late-stage activities, including production, distribution, marketing. The problem is formulated as sequential investment game with the principal, where investments are observable but not verifiable. model captures inherent incentive alignment problems of double-sided moral hazard, risk aversion, holdup. compare efficacy milestone-based options contracts buyout from client's perspective identify conditions under which they attain first-best outcome for client. find always when has some bargaining power renegotiation their applicability to different R&...