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DEWEY
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no.Z(pt2-
Q3
ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
Discouraging Opportunistic Behavior in Collaborative
A New Role for Government
Mary
R&D:
Tripsas, Stephan Schrader and Maurizio Sobrero
MIT Sloan School of Management
WP#3622-93\BPS
October 1993
Forthcoming
in
Research Policy
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
Discouraging Opportunistic Behavior in Collaborative
A New Role for Government
R&D:
Mary Tripsas, Stephan Schrader and Maurizio Sobrero
MIT Sloan School of Management
WP#3622-93\BPS
October 1993
Forthcoming
in
Research Policy
M.I.T.
OCT
LIBRARIES
2 5 1993
RECEIVED
2-
Discouraging Opportunistic Behavior in Collaborative
A New Role for Government*
R&D
Abstract
The
traditional role attributed to
government
in collaborative
R&D
has
This paper explores a new
R&D, one of discouraging opportunistic behavior.
Given the nature of R&D, concerns about opportunistic behavior can serve as
a major barrier to the formation and effective operation of collaborative R&D.
Using a transaction cost framework, we identify mechanisms by which the
been one of funding.
role for
government
in
facilitating collaborative
government can help
the Italian Societa di
performing
Specifically, we examine
appears to be
government
where
the
Ricerca program
to
discourage such behavior.
this role.
Our
findings demonstrate that, not only can government help to
control opportunistic behavior in collaborative R&D, but firms recognize and
value that role. Overall, Italian firms participating in a Societa di Ricerca
valued government assistance in establishing long term relationships and
much
valued funding. In addition, whether
a firm had prior experience in collaborative R&D affected its valuation of
government involvement. Firms with prior experience in collaborations
placed less value on government frameworks for cooperation implying that
facilitating
networking as
as they
they had learned to manage some ex-ante considerations on their own. Expost opportunism, however, was still a concern and thus experienced firms
continued to value government's contributions in this area.
We
wish
to
thank Klaus Brockhoff, Francesco Buzzacchi, Gary Pisano,
anonymous referees for their
the Societa for their support during the
course of the research. Financial support from C.N.R Progetto Finalizzato
"Trasferimento delle Tecnologie dei Progetti Finalizzati" is gratefully
Christopher Tucci,
helpful
J.
Nicholas Ziegler and three
comments and IMI and
all
Earlier versions of this paper were presented at the
Meeting, San Francisco, November 1992, Boulder High
Technology Management Conference, June 1993, and at the 2nd AUG
acknowledged.
ORSA/TIMS
Workshop,
Pisa, July 1993.
-3-
1.
Introduction
The increasing popularity of various forms
throughout the
about what
U.S., Japan,
role,
if
By providing
encourage firms
to
R&D
and Western Europe has raised many questions
any, government should play in facilitating such efforts.
Traditionally, the primary role attributed to
[12].
of collaborative
government has been funding
a pool of funds for collaborative projects,
work
governments
Examples
together in a specified technological area.
known. The Japanese government began
of such subsidies in Japan are well
sponsoring collaborative research through Engineering Research Associations
(ERA's) in the early 1960's, and they have become the major institutional
mechanism used by firms
to execute joint research. [34].
In fact,
approximately 80% of the research loans made by the Japanese government
are devoted to joint projects [54].
in governments have
Eu-
together to sponsor collaborative rest
programs such
as
ESPRIT (European
EUREKA
Information Technology),
in a
Strategic
number
Program
a
of areas
for
t.
R&D
r>
\i
joined
ough
in
(European Research Coordination
Agency), and BRITE (Basic Research in Industrial Technologies for Europe). 1
Government funding
budget of 750 million ECUs
the U.S.
programs
of such
is
substantial, with a
for the first 5 year
government
phase of ESPRIT
Finally,
[51].
government has recently joined the bandwagon, contributing major
funding to Sematech, a collaboration of U.S. firms in the semiconductor
industry.
In each of these cases, government funding helped induce firms to
participate in collaborative
The goal
— one of
R&D.
of this paper
is
to explore
facilitating collaborative
opportunistic behavior
among
R&D
an additional
role for
government
by decreasing the potential
partners.
for
Concerns about opportunistic
behavior can serve as a major barrier to the formation and effective operation
of collaborative
joint project
if
R&D
[19, 39, 46].
Firms are reluctant to commit resources to a
they feel vulnerable.
In
many ways,
the
government
is
Government can help
especially well suited to alleviate such concerns.
to
discourage opportunism through institutional mechanisms, such as defining
the legal
framework
for cooperation, as well as
mechanisms, such as membership
In this paper,
1
Much
[51,57].
we examine
in the
through administrative
governance body of a collaboration.
the Italian Societa di Ricerca (research consortia)
has been written about these efforts.
If
interested in
more
details,
we
refer the reader to
-4
program where
and administrative
functions.
may
we
functions, however, in this paper
show
findings
performing both institutional
Other institutions such as industry
associations or respected universities
Our
to be
government appears
the
be able to perform similar
government help
that not only can the
discourage opportunistic behavior in collaborative
and appreciate
that role.
on government.
focus our discussion
R&D, but
to
firms recognize
Overall, Italian firms participating in a Societa di
Ricerca valued government actions such as helping to establish long term
and
relationships
facilitating
networking no differently from
valued funding. In addition, there
manage some
experience to better
is
they
evidence that firms learn through
aspects of collaboration, but not others.
Firms with prior experience in collaborative
assistance differently from those for
collaborative experience.
how
whom
R&D
valued government
the Societa
was
their first
Firms with prior experience placed significantly
less
value on government's institutional role of establishing a framework for
cooperation than firms without prior experience did. Presumably these firms
had learned
for
to
manage
the initial set-up of a collaboration
They did
government guidance.
however, learn
not,
opportunistic behavior on their own, and
still
and
to
felt less
need
manage ex-post
valued government's
In fact, these firms valued
administrative role in controlling opportunism.
government's administrative role more highly, relative to funding, than
firms with no prior experience did. It would appear that a comparison with
the other collaborations in
which they
participate,
made
these firms
more
appreciative of the role of the government in controlling ex-post
opportunism.
The paper
organized as follows.
is
We
individual firms to participate in collaborative
government
role (Section
levels of collaborative
2).
R&D may
persist
projects (Section
government can help
theory,
Finally,
we examine
through
participants,
any
irrespective of
to the potential for opportunistic
due
From
a transaction cost perspective,
examine some of the problems encountered
R&D
R&D
review the incentives of
Despite these incentives, socially suboptimal
behavior on the part of members.
collaborative
first
3).
We
up and running
in setting
then explore
alleviate these costs (Section 4).
the Italian Societa di Ricerca
a set of in-depth interviews
we
how
the
In support of the
program (Section
5).
with Societa di Ricerca
supplemented by empirical evidence from
firms participating in the program,
we
explore
how
a written
survey of 39
firms perceive the role of
-5
the
government
(Section
and operating research collaborations
in establishing
6).
2.
Firm Incentives for Collaborative
R&D
Firms have a number of alternative mechanisms for tapping the
research capabilities of other firms, including acquisition, licensing,
R&D. 2
outsourcing, and collaborative
[28]
of
R&D has grown substantially in the
sample of 420 international
last
joint ventures, less
ventures formed from 1974 to 1977 involved
R&D
R&D
appears to be an
The percentage of collaborations that involve
increasingly popular choice.
some form
Collaborative
decade.
In FDadik's
than 10% of joint
R&D, whereas by
1982,
20%
did.
executives also consider cooperative research to be increasing in
importance. Link and Bauer
vice presidents.
[35]
The mean rating
report survey data from over 100 U.S.
for the
R&D
importance of cooperative research
rose from 2.5 in 1982 to 3.7 in 1985 (on a 5 point Likert scale, 5=very
important, 1= not important at
officially
NCRA
all).
In addition the U.S.
sanctioned precompetitive cooperative
R&D
government
with the passage of the
(National Cooperative Research Act) in 1984. This act alleviated
of the antitrust concerns of U.S. firms contemplating cooperative
eliminating treble
damages
if
firms filed with the
R&D
some
by
government before forming
a collaboration. 3
many
R&D, and
There are
collaborative
potential reasons for firms to participate in
there
is
no general agreement as
to
most important. Empirical surveys of firms participating
collaborations as well as case studies and
game
theoretic
which are the
in such
models substantiate
the following incentives: 4
•
Economies of
•
Economies of scope
•
Ability to finance costly projects
scale in research
in research
We will not distinguish between R&D Consortia, Research Joint Ventures and other forms for
organizing collaborative R&D. For our purposes, mutual commitment of resources to a research
project is sufficient, regardless of legal structure. Porter and Fuller [46] treat all types of
coalitions as a class of transactions, pointing out that there is "no simple relationship between
2
the legal form of coalitions
and the purposes they are designed to achieve." (p.316)
has actually encouraged more firms to engage in cooperative
R&D. The number of firms actually filing has not been particularly large[31] and R&D
executives did not consider the act an important influence on their decisions to collaborate [35].
4
This section summarizes rationale for collaborative R&D discussed in the following
3 It
is
unclear that the
references:
[1, 7, 15, 16,
NCRA
23, 25, 27, 30, 31, 35, 36, 38, 42, 43, 48, 50, 53, 56]
-6-
•
Avoidance of unnecessary duplication of research
•
Risk
•
Access to
•
Obtaining a
•
Exploitation of partners' complementary positions
•
Internalizing the externalities created
management
know-how network
window on
related technologies
Despite these benefits, firms
amounts
of their
in collaborative
R&D
efforts
may
R&D. When
by research
still
engaging in such
firms are able to increase the efficiency
through collaborating, society as well as the firms benefit.
We
may
socially beneficial collaborative
justifiably, feel vulnerable to exploitation
commit resources
R&D.
Firms may,
and therefore be reluctant
on
this
to
reason for underinvestment in collaborative
and how government policy can address
we
from
inhibit firms
to collaborative projects.
will focus
framework,
spillovers
invest socially suboptimal
Unfortunately, fear of opportunistic behavior
R&D
5
will
examine
specifically
how
it.
6
Using
a transaction cost
the potential for
increases the costs of engaging in a collaboration.
opportunism
As Porter and
Fuller [46,
and managing
p.340] point out "the transaction costs of negotiating
coalitions
are a significant barrier to coalition formation."
3.
3.1
The Transaction Costs
Transaction Cost!; and the Nature of
Transaction cost theory
[58, 59]
of Collaborative
R&D
R&D
proposes that efficiency in executing
transactions drives the organization of economic institutions.
achieved by minimizing the
sum
of both production
Efficiency
and transaction
is
costs.
Production costs include familiar items associated with the construction of a
product, such as raw materials and labor.
They
include, for instance, the legal
Transaction costs are less concrete.
and management
fees associated
with
negotiating a contract, the costs of monitoring the contract, and the cost of
enforcing the contract. Whereas production costs
5
In
6
Other reasons noted
may
be lower
if
a firm
some
cases duplication of research efforts may be beneficial in that, if different
organizations take different approaches to solving a problem, there is a higher likelihood
that one will succeed.
Focusing on one approach, especially in the early stages of a
technology's development, may actually inhibit innovation [40].
for
underinvestment
appropriability [15] and risk aversion.
in
collaborative
R&D
include imperfect
-7
contracts out a certain piece of work, the transaction costs associated with
may
executing that contract
be high.
the transaction costs
If
outweigh the
savings in production costs, the firm will be better off internalizing the work.
Since transaction costs are often difficult to observe, the theory
identifies conditions
under which they are
likely to
Given the
be high.
presence of opportunistic behavior and bounded rationality, transactions costs
are determined
by four transaction
uncertainty, information
of
R&D
characteristics:
asset specificity,
asymmetry and transaction frequency. The nature
We now
collaboration are likely to be quite high.
step systematically through
the transaction characteristics associated with collaborative
understand
why
this
Collaborative
When
R&D
such that the transaction costs of establishing and running an
is
a firm
R&D
to
may
be the
R&D
often involves high levels of asset specificity.
performs part of
case.
a research project, the
knowledge
it
may
gains
be useless unless combined with the work from other firms. In the
move from generic research to product
the know-how generated is idiosyncratic
biotechnology industry as firms
development, "much more of
product and firm-specific"
the
knowledge only has value
The
R&D,
is
Nelson and Winter
innovation for focusing on
if
products are developed
in the context of this joint
level of uncertainty in
high.
Thus,
[44, p.247].
R&D
any
shifts in the
project, including collaborative
They argue
"innovation involves uncertainty in an essential way"
is
of output
to predict.
is difficult
uncertain in a
fourfold increase.
2)
The timing
number
One may
performance and instead obtain only
a
uncertain.
easily
3)
The
The absolute
of
level
unclear.
it is
Research projects do
difficult to predict findings
results will be applicable
is
may
[45].
common
in collaborative
R&D
In order to protect proprietary interests, firms often divide projects
into distinct
modules
to
be performed separately by each firm. In the Japanese
project, for instance,
opposed
is
which
Information asymmetries are also
VLSI
1)
For example, a research project meant to solve one problem
end up solving another
projects.
of aspects:
The output
twofold increase or perhaps even a
of results
specific area in
(p. 47).
that
anticipate a threefold increase in
not provide a steady stream of results, and
ahead of time.
economic views of
production function and ignoring the
uncertainty surrounding the innovation process.
the research process
jointly,
development.
criticize traditional
[41]
to the
company
labs
to the central cooperative lab, in
performed sensitive research, as
order to protect proprietary
-8
information
By organizing projects
[20, 28].
manner, however, each
in this
firm has access to a different set of information about
progressing.
It is
therefore very difficult for
them
to
how
the project
is
monitor each other's
progress.
Finally, the
be high.
If
two
mere frequency of
firms' research
modules are highly interdependent, then
frequent communication and costly coordination
Since collaborative
R&D
one would expect high transaction
will
now examine
in
more
may be
necessary.
typically involves high levels of asset
specificity, uncertainty, information
We
R&D may
interactions in collaborative
asymmetries and frequency of interaction
costs associated
with collaborative R&D.
detail the specific transaction costs
which
arise.
3.2
Ex-ante Transaction Costs of Collaborative
In structuring collaborative
agreement over
a
wide variety of
Given the nature of
together.
R&D,
R&D
potential partners
must reach
issues before finally deciding to
R&D
work
discussed above, the costs associated with
reaching agreement on these issues can be significant. In Boeing's joint
development of the 7)7 with
p.273] point out,
"No
a
group of Japanese firms, Moxon
longer able to rely on 'the Boeing way' as a
dispute resolution, the two firms have had to develop a
set of plans for
et. al. [39,
means
much more
of
detailed
handling the upcoming venture... working groups spent more
than a year developing concrete statements about various parts of the project
and defining work shares."
In addition, the difficulties in negotiating
among
partners increase rapidly with the
firms there
is
one relationship
to
an acceptable agreement
number
of participants.
worry about; with three firms there are
three relationships, with four firms, six relationships
collaboration of
We
many
With two
and so
on.
Getting a
firms to agree can therefore be extremely difficult.
7
have identified 4 areas of contention which firms must attempt
resolve in ex-ante negotiations
when forming
1)
Control of ownership,
3)
Goals of the collaboration, and
2) Distribution of
to
a research collaboration:
research contributions and results,
4) Protection of proprietary technology.
Brockoff [7, p.519] argues "that firms should be able to find arrangements to deal efficiently
with cooperation regardless of the numbers of partners involved." He provides empirical
evidence that partially support this proposition. However, the argument requires that the
firms negotiate with the cooperative entity and not directly with each other.
9-
Control of Ownership
3.2.1
who
Often, disputes emerge over
venture
[29,39]. Generally, in a
majority for fear that
if
two-party relationship, each player wants the
the other player has control,
In multiparty consortia, control
position.
have control in a collaborative
will
a
is still
will exploit that
it
key
issue,
with increased
complexity given the larger number of parties involved. Smaller firms
feel
extremely vulnerable
when
may
dealing with larger firms. Doz, [19, p.323] in
an analysis of technology partnerships describes "an almost visceral fear on
the part of managers
and owners of the smaller
firm, of the bigger firm taking
detrimental action that the small firm cannot resist and that could put
Concerns about subgroup coalitions
future in jeopardy."
Time and
some
Hladik
[29] describes a potential
Ford and
cases,
Fiat
no agreement
is
also exist.
ownership can therefore be substantial,
legal fees spent negotiating
and, in
may
its
reached and the collaboration abandoned.
product development collaboration between
which would have given each firm access
to
key technologies,
as well as providing
complementary market coverage. Unfortunately, the
two firms reached
deadlock in negotiations over ownership control, and the
deal
was
a
canceled.
3.2.2 Distribution of Contributions
and Results
In any collaboration, rules for
and
each
for
how
how much
each firm should contribute
the profits are to be shared are difficult to establish. Firms
feel that
they contributed more than the other, or that they contributed
the key personnel
[6].
Agreement on the
distribution
research results suffers from similar problems and
contention in collaborative
R&D,
especially
if
competitors in downstream product markets
information asymmetries associated with
precisely specify rules ex-ante.
will be
when
may
needed in order
that result has
to
It is
a
often a matter of
[44].
The uncertainty and
it
how much
given
of
the firms are potential
R&D make
unclear
accomplish
is
and ownership
result.
been achieved. Guidelines
for
difficult for firms to
of a "contribution"
It is
who
also unclear as to
controls the day-to-
day management of various pieces of the project take on increasing
importance since allocations are likely
project.
The ex-ante transaction
to
change throughout the course of the
costs associated
with negotiating rules for
contributing and sharing can therefore be substantial.
-10-
3.2.3 Goals of the Collaboration
must agree on the goals
In order for a collaboration to succeed, partners
of the venture.
Doz
[19, p.319] calls this
consensus "convergence of purpose,"
common operational goals. Moxon et al. [39]
common "strategic direction," in other words,
noting the importance of
to the importance of a
agreement on the product-market segment targeted by the venture.
R&D
goals of an
criteria for prioritization of
Reaching agreement on such factors
is
very difficult given the
complicates each of these decisions. For instance, firms will find
a priori since
subsequent research results
Information asymmetries also
knowledge
it
the scope of a collaboration or a target product-market
difficult to specify
segment
research projects.
The uncertainty surrounding
transaction characteristics discussed above.
R&D
The
collaboration also include definition of the technological
scope and identification of
most
refer
make agreement
available to them, each firm
shift priorities [44].
difficult.
may have
Reaching agreement
important areas to pursue.
may
Given the
a different
may
information which the firms consider proprietary.
view as
to the
involve sharing of
These
difficulties result
in high transaction costs associated with spelling out goals ex-ante.
3.2.4 Protection of Proprietary Technology
The desire
a
of potential partners to protect proprietary technology can be
major obstacle to collaboration
[39].
Firms must attempt to negotiate a
governance structure which allows projects
to
be performed
without unintentionally sharing proprietary information.
mentioned
earlier, firms will
efficiently, yet
Many
conduct research independently in their
labs in order to lessen the risk of losing intellectual property.
firms
must determine
a logical split of the
interdependencies early on
times, as
when
there
is
different parts of the project will progress.
own
In this case,
workload, forecasting
high uncertainty about
how
This process can be lengthy, and
often the firms have to renegotiate the workload at a later point in time.
3.3 Ex-post Transaction Costs of Collaborative
3.3.1
R&D
Renegotiation
Since
takes place
R&D
is
is
highly uncertain,
much
of the ex-ante contracting
which
destined to be incomplete. As a result, firms often agree to
decide matters at a later date, once the collaboration
Such renegotiation can be
costly
and thus
is
underway
[19, 44].
result in high ex-post transaction
11-
costs.
In the biotechnology industry, disputes over renegotiated items often
result in costly legal fees for the firms involved [44].
Even
collaboration are well-specified, the cost of monitoring
if
the terms of a
and enforcing
it
can be
high.
Monitoring and Enforcement
3.3.2
Monitoring progress of a collaborative research project
is
difficult for at
least three reasons.
First,
information asymmetries associated with
distributed research
make
it
difficult to accurately
judge whether partners are
abiding by the collaborative agreement. Since the purpose of distributing
research to different sites
is
to protect proprietary information,
it is
that firms will allow partners access to those facilities in order to
unlikely
monitor
progress.
Second, the uncertainty of research results accentuates difficulties
evaluating a partner's contributions.
results or
Firms
output as a substitute for visiting
may
facilities.
simple relationship between input and output
about results will give
working.
A
a firm little real data
direct evaluation of effort
very difficult to gauge
attempt to monitor research
exists,
Since, with
R&D, no
however, information
on how hard the partner
would be
a better
is
measure, but effort
is
Consequently, several private ordering
[19].
mechanisms normally used
problems of opportunistic
for addressing
behavior do not work in such a situation. For example, the ex-ante coupling
of opportunistic behavior with ex-post sanctions - such as posting a
is lost if
a player
alternative
did
as
if it
fulfill their
is
behaves opportunistically,
i.e.
[24, 49]
-
is
bond
that
not a feasible
cannot be measured unambiguously ex-post whether players
In other words,
obligations.
often the case in
R&D,
players
if
performance cannot be gauged,
do not have
the possibility to accept
binding commitments.
R&D
Third, as information, the results of
characteristics.
Information can be transferred to other parties without the
transferee losing the information
monitor whether proprietary
how
they might have leaked.
usage
is
nearly impossible
[3].
[9].
R&D
It is
results
damage
control
therefore difficult for a firm to
have leaked out or
Once information has leaked,
Agreements
private are therefore difficult to monitor
violated,
have some public good
is difficult.
to
to
determine
controlling
keep certain technologies
and enforce, and once they are
its
12-
The expectation
may
opportunistically
R&D
collaboration will act
well lead to a classic prisoner's dilemma where despite
two firms would be
the fact that
an
that one's partner in
better off
by
individually have the incentive to defect.
both firms
jointly cooperating,
we
For instance,
can think of
cooperating as sending a high caliber researcher to the consortium and
Each firm
defecting as sending a poor performer.
defect
firm
X
and send
may have
the incentive to
poor performer regardless of what the other firm did.
a
sends a high caliber performer, firm
Y
If
could conceivably reap the
benefits of the research without having to contribute a high caliber researcher
of
its
own.
It
would
therefore have an incentive to defect
performer. Likewise,
would
firm
if
also prefer to send
X's research
by sending
its
X
sends
low
low
its
caliber
We
a top performer. Consequently, a "defect-defect"
Given
is likely.
may be
this
difficult.
Governmental Role in Controlling Opportunism
have discussed the reasons
collaborative
Y
performer rather than subsidize firm
incentive to defect, enforcing an agreement to cooperate
A
a poor
caliber performer, then firm
outcome where both firms send poor performers
4.
and send
R&D
why
setting
can lead to high transaction
up and running
costs.
In this section
explore several measures available to government that
may
we
help to
discourage opportunistic behavior and thereby reduce transaction costs.
We
distinguish between institutional and administrative mechanisms.
Institutional
mechanisms are those
activities
by which government
helps to establish a framework for cooperative action through, for example,
changes in the legal system. By shifting aspects of the institutional
environment such as property
rights, contract law,
reputation effects or
uncertainty, the comparative costs of different governance forms are altered
[60].
Naturally, government
in an especially
Government's
institutional role.
role are primarily
is
aimed
at
good position
to fulfill
such an
activities in the context of its institutional
reducing ex-ante transaction costs of a
collaborative venture.
Administrative mechanisms refer to government involvement in the
actual workings of the cooperation, for
governance bodies.
example through membership
Through such involvement government may
reduce ex-post transaction costs and, by doing
costs.
so, indirectly
in
directly
reduce ex-ante
-13
£1
Institutional
Mechanisms:
Decreasing Ex-ante Transaction Costs
The government can employ
several
mechanisms
to decrease the
By
transaction costs associated with formation of a research collaboration.
government can
defining an overall framework for cooperation
the
limit the negotiation
of alternatives that
need
to
legal
wording
up front,
space thereby reducing the number
be explored. This framework can cover everything from details of the
of the agreement to
control can be alleviated
if
more general
how ownership
the government prespecifies
the collaboration will be distributed
among
Concerns over
guidelines.
of
partners, defining, for instance,
rules for the allocation of shares in the case of a partnership or legal
As long
corporation.
what the
same
as they are reasonable,
it
may
matter less in
is
ues.
By providing
a
distribution of research results or the organization of
government helps firms
One
post exploitation,
contracting
up
will feel less
4.2.1
to
more
To
it
-cts,
pr..
the
easily reach agreement.
the extent that the
is
the fear of ex-
government can help avoid such
ex-
can significantly diminish the need for extensive
front.
need
The
\u of options for the
:
of the biggest reasons for ex-ante transaction costs
post exploitation.
4*2
ide guidance.
specific rules are, than that they are there to pr
principle holds for other
some sense
If
firms are less worried about ex-post exploitation, they
to anticipate
and account
for contingencies ex-ante.
Mech anisms: Decreasing Ex-post Tra nsaction Costs
Administrative
Monitoring
Axelrod
means
for
[5, p.
139] identifies
"improve recognition
abilities"
promoting cooperation. By recognizing defection when
as
it
one
occurs
and remembering which players defected and which cooperated, firms
The government can help improve
better able to cooperate.
to "recognize"
and
to
are
a firm's ability
"remember."
At an operational
level, the collaboration
rights to the government.
could assign monitoring
For instance, the government could appoint an
auditor to examine ongoing research projects and ensure that firms are
abiding by the intent of their original agreement.
performed
at
If
research
is
being
multiple laboratories, this third-party auditor could visit each
participant's site to evaluate progress.
Though unable
uncertainty, the auditor can certainly help reduce
some
to eliminate
of the information
14-
asymmetries discussed
information transfer
Through
as a
its
Such an individual would also
earlier.
among
participants,
facilitate
so desired.
if
involvement over time, the government can help to serve
memory which
spans multiple projects. Knowledge of the level of
cooperation on prior projects can be
made
available to firms other than just
the project participants. This type of tracking can increase peer pressure to
cooperate.
4.2.2 Threat of Rqjrisal
The government may have both
agreements among firms.
If
and implicit power
explicit
government sponsors a collaboration,
generally have representation on a board or advisory committee
to enforce
will
it
which
overseas the operation of the collaboration. This board or committee
give the government the legal power to discipline firms which
by the
do not abide
intent of the agreement.
Even without such
power
may
resulting from
its
explicit control, the
ability to
government may have
implicit
exclude firms from future collaborations
if
they appear uncooperative. For instance, Levy and Samuels [34] argue that
Japanese firms
to
feel
obliged to cooperate with MITI so that they will continue
be included in future
The
ability of the
projects.
government
to enforce
an agreement can help to
avoid the prisoner's dilemma discussed above. In order to avoid the "defectdefect" outcome, both firms in a prisoner's
agree beforehand to cooperate.
however, each firm needs
to
that the other firm will also
The question
is
In order for such
both ignore
do
so.
its
own
an agreement
to succeed,
incentive to defect
and
trust
Like the monopolist in the classic Coase
way to commit to strategies that appear
how they can do so. The government can help by
problem, the firms must find
irrational.
dilemma could communicate and
a
providing firms the necessary commitment device.
The
threat of reprisal,
while not the equivalent of "burning the bridge behind the army," can be an
effective
commitment mechanism. As Levy and Samuels
out, "In the absence of a state authority
[34, p.128]
which rewards cooperation and
occasionally punishes defection, research consortia are almost never
established
among competing
firms."
point
-15
4.2.3
Establishing Long-term Relationships
Another way
to
promote cooperation and avoid the problems of
dilemma
is
through the establishment of long-term relationships.
prisoner's
This approach works for two primary reasons.
span of the cooperation, the penalty
defects will face
punishment over
for defecting
a firm places
The second way
cooperation
is
that
it
in
which
on future cash flows, the
is
the temporary
demonstrated formally by
[22].
Such behavior, where
the prior
move
of
its
a firm
responds
collaborations has
opponent, can encourage
made
it
easier to establish
such
self -policing
behavior
government
facilitate the
establishment of such relationships?
government involvement can help
Firms therefore view
know
to
work
by establishing
to cooperate.
if
one member decides
Buckley and Casson
suggest
[8]
a reputation for forbearance, through, for instance, a
conspicuous public demonstration,
efforts.
apart
They
Second, the government provides firms a chance to publicly
demonstrate their willingness
that
fall
stability
together in
long term.
their relationships as
the collaboration will be less likely to
withdraw.
and
to establish continuity
in a collaboration, increasing the likelihood that firms will
the future.
[34].
How,
Clearly long-term relationships can help foster cooperation.
First,
to
For instance, the long-term stability of players in Japanese
[5].
then, can the
firm that
allows for enough interaction to establish a pattern of
move by emulating
cooperation
A
severe.
life
a long-term relationship encourages
reciprocal, or tit-for-tat behavior.
every
This result
[5, 49].
through the folk theorems
theorists
more
may outweigh
prospect of losing these future relationships
game
is
by extending the
a long series of future relationships.
Depending upon how much weight
gain to be had by defecting
First,
a
a firm is
more
likely to
form collaborative
Third, as discussed earlier, by monitoring collaborations
providing the equivalent of an organizational
memory
of
how
and
firms have
performed in previous collaborations, the government extends the time
horizon of interactions, helping to encourage cooperation.
government can provide
If
firms can
a
forum
for firms to establish long
become acquainted with one another before
chances their collaboration will succeed
feel
may
increase.
they are part of a network, self-policing behavior
network
may
be stronger.
Finally, the
term networks.
collaborating, the
In addition,
among mer
i
firms
ers of the
-16
We
have thus seen that theoretically the government can play
a
significant role in controlling the potential for opportunistic behavior in
collaborative
R&D. We now examine how
the Italian
We
role in the Societa di Ricerca program.
review
government plays
how
the
program
this
is
structured as well as reporting the results of a survey of firms participating in
the program.
5.
5.1
Government's Role
in the Italian Societa di Ricerca
Methodology
In order to understand the Italian government's role in controlling
opportunism,
a
we
conducted semi-structured interviews, in conjunction with
survey of firms participating in a Societa di Ricerca (research consortium
referred to as "Societa" from
).
We
program and the general manager
Societa
get
now on 8
interviewed the director of the
of each of eight Societa in order to
an understanding of how the program operated.
member
several
We
then contacted
firms of two Societa and interviewed the individual
responsible for the liaison. Interviews lasted from one to four hours.
Building on the information collected during our interviews,
developed a written survey
understand
and, in the
how
fall
for firms participating in a Societa in
they viewed government's
of 1991, mailed/faxed to
For one Societa, Tecnotessile,
we
role.
felt
104 firms participating in a Societa.
all
received only 2 responses out of 24 partners.
for less
than one year
uncomfortable answering the survey given their lack of experience
with the Societa.
have no reason
Societa,
order to
The survey was pre-tested
Approximately 2/3 of the partners had been members
and
we
We
therefore excluded Tecnotessile
to believe that this biased
our
from our
results. 9
analysis.
We
For the other 7
from an overall sample of 80 partners, 39 questionnaire were
returned, giving us a response rate of 49%.
5.2
Overview of
A
the Societa di Ricerca.
Societa di Ricerca
comprising mostly private
is
a
government-sponsored research consortium
Italian firms,
research centers and universities.
8
9
The
plural of Societa
is
but also including private and public
Foreign entities are not allowed to
join.
also Societa.
Turnover at the other Societa has been minimal. Of the original founding partners, 90% are
still members.
17-
Each Societa
members
incorporated, and
is
are
all
shareholders.
A
Societa
sponsors mostly applied research projects, with the goal of producing research
results.
It
does not become involved in the product market.
Societa di Ricerca
were established by
Italian
Act 1089 in 1968. The
general purpose of the act was:
"..speeding the progress and the development of the national
industrial system and the adoption of more advanced techniques
and technologies ." 10
The government implemented
owned
financial holding
the Societa. 11
the act through IMI, a
company, which serves as
The sponsorship
of Societa
was one
utilized to fulfill the objectives of the act. 12
goals,
1.
which serve
as a guideline
participate in public research contracts.
3.
To
transfer technological
To
act as a link
projects
knowledge
broad
projects
to small firms.
contribute fees to cover operating costs.
eligible to
apply
for
scientific
community.
In addition, projects
government funding.
There
that funding will be forthcoming, although a majority of
do receive government support. No
10 Legge 25 ottobre
1968, n° 1089,
IMI
act identifies four
between industry and the national
sponsored by the Societa are
no guarantee
mechanisms
for third parties.
To
Members
11
of multiple
the operations of a Societa [14]:
2.
4.
agent in the context of
To promote, perform and/o: manage applied research
autonomously or
is
:
The
its
government
art. 4,
comma
official statistics exist for the
1.
whose controlling shareholder is the Ministry of
Treasury. IMI initially specialized in medium and long term financing for industrial activities
[11]. Over time, IMI has widened its scope to include direct participation in investment and
merchant banking, as well as the provision and management of investment funds, mutual funds
and life insurance products. IMI's role in the country's economic system has been shaped by law
is
a publicly held financial institution
rather than by political appointments, thus sheltering it from current politics. Consequently,
IMI acts here as a government agency abiding by well established legal mandates as opposed to
the dictates of the current government. The decision to give IMI a prominent role in the
management and control in the Societa should then be considered within the policy framework
established by Act 1089. Given its institutional role, IMI provides a link between government
efforts to encourage R&D and the country's industrial system.
12 IMI
has two other mechanisms at its disposal for accomplishing this goal, directly lending
funds at a subsidized rate to privately sponsored projects, and directly granting funds to
privately sponsored projects. Projects sponsored by a Societa are eligible to apply for these two
types of funding. These two modes of supporting technological development are clearly
financial and they have been studied in some depth. [2, 4, 21, 37, 55]. Few studies, however,
have focused on the third mechanism, the formation of Societa [17,47].
-18
whole 20 year period of
activity of the
program, however a 1990 study
p.41] calculated that roughly $60 million in loans
the Societa
by the government from 1985
and
capital
was
[10,
allocated to
to 1989.
In order to establish a Societa in a given field, a group of interested and
may initiate the process by submitting a proposal.
IMI may identify a set of partners with complementary
eligible partners
Alternatively,
interests
and bring them together
to
submit a proposal. The proposals are
approved by the Ministry of Treasury.
established in both ways, and
all
no proposal has been
eight Societa started since 1971
formation of
Table
new ones were
1
Historically Societa
were
active
rejected.
have been
As
and no proposals
of July 1993,
for the
pending.
provides a brief overview of these eight Societa and their
progress. Overall, the
program has had promising
successfully completed over
results,
with 91 projects
resulting in 33 patent applications
its life,
and 35
marketable products. In addition, the results of 54 projects are in the process
of being further developed by either the participating firms or the Societa.
— insert table
The Societa themselves vary
industries such as pharmaceuticals
The number
management
Societa.
of partners ranges
1
about here
greatly.
—
They cover both "high tech"
and "lower tech" industries such as food.
from a low of
six in
SAGO,
the health
Societa, to a high of twenty-four in Tecnotessile, the textiles
Some
subset of these partners participate on each project. In
addition, each partner can participate in multiple projects.
participation varies from a low of
where several partners
are
.5
The range of
projects per partner for Tecnotessile,
new and have
yet to begin projects, to 8.1 projects
per partner for Tecnomare.
Despite these differences, each Societa
governed by
a similar set of rules.
government helps
establish a
is
set
up
in a similar fashion,
and
The establishment of these rules by the
framework
for cooperation
ante transaction costs associated with forming a Societa.
and lowers the
ex-
-19-
Framework
Societa Institutional Mechanisms: Establishing a
5.3
for
Cooperation
5.3.1
Predefine Share Distribution
When
a
new
Societa
founded,
is
its
shares are distributed
among
the
participating firms according to the following rules:
•
IMI holds a
needed
to
relative majority, usually
about 30%. Since a 3/4 majority
approve any major decision by the Societa,
is
shareholding
this
gives the government veto power.
•
Remaining shares are divided equally among the members.
•
Small firms can join together to form a "subconsortium" which
same share
•
If
•
must be
less
same Holding Company, the sum
As an example,
of their
than IMI's share.
After the Societa has been established, the entrance of a
be approved by
is
the
as each of the larger firms.
several firms belong to the
shares
owns
new
partner must
a majority of the shareholders.
the share distribution of Tecnobiomedica, one of the Societa,
presented in figure
1.
IMI holds the
relative majority (28%),
with the other
partners each holding the same share (6.5%). Furthermore, the partners
include large independent firms (C.G.R, Elettronica), firms controlled by the
major holding companies (Sorin(FIAT), Esaote Biomedica(IRI)) and small
firms, represented
by the consortium
By prespecifying equal
potential partners, the
Corites.
distribution of
ownership shares among
government has eliminated disputes over control and
thereby saved a great deal of negotiation time and
debate:
if
a firm
shouldn't join.
is
willing to accept an equal share,
effort.
it
can
There
join,
is
and
nothing to
if
not,
it
Eliminating the possibility of control by any individual firm
allows each firm to accept a minority position without losing face.
An
independent third party, IMI, holds the relative majority. In addition, the
problem of encouraging smaller firms
them
to join as a group.
by larger firms
solved by allowing
in a collaboration since, in aggregate, they hold
no holding company
government.
is
Smaller firms should feel less fear being dominated
Concerns over domination by
since
to participate
is
a single
an equal share.
holding company are also alleviated
allowed to
own
a larger share
than the
In addition to rules for share distribution, the
provides guidelines for forming the collaboration.
government
20
— Insert figure
1
about here
—
5.3.2 Provide Guidelines for Organization Charter
Two
major documents are signed by the partners in order to form a
Societa: the Statuto
and the
The Statuto
Patti Parasociali.
is
the formal
incorporation document which establishes the Societa as an organization
which must abide by
Italian corporate law.
as the identity of the shareholders.
Whereas
is
establishes standard items such
Patti Parasociali specifies
covered.
for a private research
consortium the partners would have to
two documents from
negotiate the content of these
scratch, in this case
provides clear guidance. Based on government guidelines,
establishes
norms
Specific
results.
agreements
In this case, for instance, the distribution of
particular to this corporation.
research results
The
It
for voting, controlling
wording
is
IMI
IMI
[14]
procedures and distribution of
even suggested
for
major sections of the relevant
documents. IMI thus defines the contractual content of the relations within
the Societa avoiding any need for extensive negotiation.
For example, results for
project
is
completed, there
is
all
Societa are distributed as follows:
a period of time
Once
a
during which the Societa has
proprietary ownership of the results. During this period, partners active
on
the project have the exclusive right to use the results either as licensees or
through other mechanisms. The length of
factors such as the length of the project
the period the active partners
and
this
its
period varies depending upon
overall budget.
By the end of
must repay any outstanding government loans
related to the project in order to obtain
ownership of the
results.
If
they do
not do so, they lose any proprietary rights to the innovation and other
partners in the Societa can apply for licenses. Based on our interviews with
the
management
of each Societa,
it
appears that the active partners have
always paid the loans back and kept ownership.
Although, in some ways, specifying such
of the collaboration, by providing a predefined
a charter limits the flexibility
framework
for cooperation,
eases the process of getting together, thereby decreasing ex-ante transaction
costs.
it
-21
5.3.3 Reference Learning
from Prior Societa
Perhaps one of the greatest assets IMI has to contribute to a Societa
is its
experience with other Societa. This experience gives the IMI an
understanding of potential
cooperation. 13
It
pitfalls to
avoid,
and helps
also decreases the uncertainty associated with formation of
a Societa since firms
on
In order to
can look to the experience of existing Societa.
facilitate the transfer of learning across Societa, the
sits
to establish a culture of
the boards of multiple Societa
[47].
same individual from IMI
This individual
therefore able to
is
provide a knowledgeable perspective on issues confronting each Societa.
Thus, the IMI's participation in each Societa fosters learning both within a
given Societa as well as across Societa.
5A
Societa Administrative Mechanisms: Improving Ex-post Monitoring
and
Enforcement
5.4.1
Avoid Domination by a Single Firm or Coalition of Firms
The
Italian
government helps ensure
that
no single firm or
firms dominates the Societa through two mechanisms.
First,
coalition of
given the
ownership and voting structure discussed above, IMI can basically veto any
proposed action through
coalition of firms
its
shares.
This structure keeps any single firm or
from unilaterally imposing
will
its
on the
Societa.
Second,
the equal division of the remaining shares, regardless of the size of the firms
involved, assures equal opportunities to both large and small firms.
firms have the
same voting
Smaller
and need not worry about
rights as large firms
being dominated.
5.4.2
Ensure Management Follows Legal Charter
In addition to using equity, IMI wields control through
the
two supervisory boards
and the
of the Societa:
Collegio Sindacale.
of Directors.
For the Societa,
operating management.
The
The Consiglio
it
membership on
the Consiglio di Amministrazione
di
Amministrazione
includes only external members,
Collegio Sindacale
is
a 3
is
the Board
and no
person board which
reviews the actions of the Board of Directors and of the Societa as a whole.
ensures that
Statuto.
1
^
If
all
It
of the activities of both are legal and consistent with the
management,
for instance,
attempted to favor certain partners
Watkins [57] raises a similar point regarding the "umbrella-consortia organizational design
Eureka and Esprit," pointing out that the history of previous collaborative research
agreements "provide established norms and rules for cooperation."
of
-22
IMI has the right to
over others, the Collegio Sindacale could intervene.
name one of
the members
the three
members forming
the Collegio Sindacale
of the Board of Directors. While
it
and some of
actively participates in long
term strategic decisions through membership on the board, our interviews
confirm that IMI does not otherwise participate in the Society's management.
Figure 2 summarizes the relationship
among
the shareholders, Collegio
Board of Directors and Management, highlighting EMI's
Sindacale,
participation in each.
— insert figure 2 about here —
5.4.3 Specify Independent Project
Manager
Each project performed through
manager who works
for the Societa.
a Societa has
an independent project
This individual supervises the
execution of individual projects, coordinating the ongoing efforts of
participating firms. 14
Project
managers are generally highly qualified
individuals, and often hold advanced degrees.
member
As
a representative
from one
firm commented:
"The Societa provides us an important administrative service.
Since every project requires coordination because of the different
parties involved, the Societa assigns a project manager. I speak
with the manager of our project about three times a week, and
he is very involved and very helpful."
The
ways.
manager helps
project
s/he
First,
is,
in
some
auditor described earlier.
to control opportunistic
sense, performing the role of a third party
By following the detailed progress of the project
through frequent conversations with each firm as well as
manager
project
14
The
and
distributed
among
facilities.
If
site visits,
the
able to diminish the information asymmetries associated
is
eight existing Societa can be classified into
Societa (five),
behavior in two
2)
Operating Societa
(three).
categories: 1) Coordinating
Societa, research is
coordinating
In a
two broad
own human resources and facilities.
The Societa performs predominantly an administrative function through the project manager.
In the second case, an operating Societa, a project manager is also provided. The Societa,
however, not only coordinates, but also executes the project using its own human resources and
the partners and performed with their
partners have specific expertise, then they are also involved in projects as
The partner then receives its fee for the research as well as benefiting
external contractors.
indirectly through
manager
is
most
its
ownership
critical in a
interest in the Societa.
Coordinating Societa.
The
role of the
independent project
23
with distributed research. S/he can share each participant's current status
with other participants.
research
facilities
The Societa
project
manager can
without the firm worrying as
proprietary information to a competitor.
As
visit a firm's
much about
leaking
manager
the general
of one
Societa told us,
"The partners know that we will assure confidentiality on what
we see during our visits to their research sites. They agree to
work with the Societa because they know that they do not run
any risk of information leakage on other research they are
performing."
Second, the project manager provides consistency and continuity across
multiple projects, helping to decrease the perceived hazards of the
collaboration.
Firms can observe
and
learning
may be more
5.4.4 Provide
among
their
own
project.
in prior
In addition,
easily shared across projects.
Long Term Perspective
As discussed above, long-term
trust
worked
the structure has
more comfortable about
projects
feel
how
relationships are important in fostering
firms and avoiding a prisoner's dilemma.
helps to establish a long-term perspective through a
The government
number
of mechanisms.
IMI's share ownership provides continuity in spite of potential changes in
Societa membership.
In a private consortium,
vulnerable to turnover.
member
The comments of
members would be more
a representative
from one
firm exemplify this concern:
"My
firm participated in a private research consortium with
eight other firms about ten years ago. The consortium fell apart,
with three of the original nine firms going out of business. The
paying the debt. With the Societa, IMI's
presence provides us some sense of stability."
rest of us are left
In addition to providing continuity, IMI serves as an organizational
memory which spans
Societa.
By not cooperating,
risks
it
other Societa and with IMI.
Each firm builds a history of projects with IMI.
its
reputation not only within
its
Societa, but
with
Firms therefore do not view each project as an
isolated relationship, but instead take a longer-term perspective.
24
Finally,
through holding bimonthly meetings of the representatives
from each firm in
IMI provides a forum
a Societa,
exists.
way
of finding project partners with
Firm representatives are not meeting
exchanging ideas and
This "sponsored" networking
establishing long-term personal relationships.
provides a
for
whom
a prior relationship
for the first time
when
consider working together, but instead, have established at least
for trust.
As
a representative
from one firm
they
some
basis
stated,
"By meeting all together every two months, we are able to establish a
higher level of trust and also be aware of what other firms are doing."
When
asked in the written survey whether the firm was more likely to
government sponsored collaborations
participate in
experience with the Societa, the
mean response on
7=much more likely) was 5.6, also
program was effective in encouraging future
less likely,
6.
How Do
Societa Participants
The structure of the
the government's role
is
Societa
a 7 point scale
(l=much
indicating that the Societa
relationships.
as discussed above, suggests that
than simply funding.
The government,
through IMI, helps to control opportunism via multiple mechanisms.
propose that member firms both perceive and value
governmental
role.
This hypothesis
participating in a Societa.
The focus
is
its
View Government's Role?
program
much more
in the future, given
We
this additional
tested through the survey of 39 firms
of the survey
was
to
understand
why
firms participated in a government sponsored research consortium rather
than simply forming one on their own.
Did they view government's
the Societa as simply providing funds, or
were other aspects of government's
involvement also important
6.1
Measuring Firms
To address
'
in influencing their decision to join?
Perceptions: Determin ation
this issue,
role in
of Variables
each firm was asked, in the written survey,
why
it
chose to execute joint research projects through a Societa as opposed to
through an independent research consortium. They were asked to rate the
importance of seven different benefits of
based on our
earlier interviews
a Societa.
and are defined
These seven benefits were
in Table
2.
— Insert Table 2 about here —
25
The
traditional benefit firms expect
from
consortium, preferential access to funding,
Provide Funding.
Institutional
is
a
government sponsored
represented by the
first
variable,
mechanisms by which the government
decreases the ex-ante transaction costs of initiating collaborative research are
represented by the variable Establish Framework for Cooperation.
Administrative mechanisms by which the government decreases ex-post
transaction costs are represented by four variables: Guarantee Project
Completion, Avoid Conflicts, Establish Long Term Relations and Facilitate
Networking.
Finally, Offer Technical Expertise reflects the
knowledge resident
technical
in
some
A
of the Societa.
high level of
firm
may
join in
order to gain access to particular technological experts.
In order to understand the relative importance of these reasons for
two ways:
each reason was rated
participation, respondents rated
them
on
from l="not important" to 7="very
a 7 point Likert scale ranging
in
1)
important" in influencing the firm's decision to perform
through
a project
Societa rather than through a non-government sponsored consortium.
The respondent ordered these same reasons according
importance on an interval
number
scale.
2)
to their relative
Respondents were instructed
of the most important item at the top of the scale,
the least important item at the bottom of the scale.
a
to write the
and the number
of
Other items were then
placed in between, with the distance between items representing their relative
importance. Values between
upon
its
position
spaced along the
8,
the next
on
1
the scale.
scale, the
and 8 were assigned
For instance,
if all
to
each item depending
eight items
were equally
most important item would be assigned
most important item assigned
a
value of 7 and so on.
If,
a
value of
on
the
other hand, four items were clustered at the top of the scale, and four
clustered at the bottom, the top four
four a score of
items, the second
first
measure
forces a relative
to
one
in order to
comparison of them.
we added
as the basis of the analysis. 15
from zero
and the bottom
measure represents the independent ratings of the
capture both of these dimensions,
sum
receive a score of 8
1.
While our
the
would
the
two
ratings together, using
This final rating
make comparisons
In order to
was rescaled
to
run
of ratings easier to
understand.
15
The results are not sensitive to which measure is used; doing the analysis using only the
measure or only the second measure yields the same results as using the sum of the two.
first
-26
The Relative Importance of Controlling Opportunism as Opposed
6.2
to
Funding
Firms apparently appreciate government's involvement in a research
consortium not only for access
institutional role
and
to
funding; aspects of government's
administrative role are also valued.
its
In order to see
how
firms valued these additional roles as opposed to funding, pairwise
tests
were run on the
with the
mean
Long Term
3.
The means of Guarantee
The
results are
Project Completion, Establish
Relations and Facilitate Networking were not significantly
from the mean of Provide Funding. Hence funding does not
different
emerge
comparing the mean of Provide Funding
entire sample,
of each of the other reasons for joining.
displayed in Table
t-
as the
most important reason
for a firm to participate in a Societa.
This result tends to support the hypothesis that firms recognize and value
government's role in controlling opportunism and are not simply looking for
funding.
The low
Conflicts relative to Provide
results.
Funding
By next examining the
collaborative
Framework
ratings of Establish
,
for
Cooperation and of Avoid
however, are not consistent with these
role of a firm's prior experience in
R&D, we shed some
light
on
this
apparent contradiction.
— Insert Table 3 about here —
6.3
The Role of Prio r Experience
The
literature
on
collaborative ventures as well as the literature
on
organizational learning 16 indicate that, through experience, firms can
develop expertise in forming and carrying out such ventures.
competency can be expertise
feels that part of a firm's
ventures. Ciborra
learn
is
how
to set
[13, p.59] also
up and
in
Harrigan
forming
joint
supports this view pointing out "a firm can
fine tune alliances per
se.
The
result of
such learning
the institutionalization of the organization's rules and routines
managing
alliances."
Brockhoff
[26]
[7],
using a sample of 135
aimed
German
at
firms,
observes that prior experience with inter-firm cooperation seems to reduce
16
A
large
body
of related literature has
examined learning and collaboration
in
terms of a
partners in a collaboration (see Dodgson [18] for a summary).
With experience, firms can do a better job of technology transfer. They essentially learn to
learn. While not directly related to controlling opportunism, this literature might imply that
firms can also learn to better manage opportunistic behavior.
firm's ability to learn
from
its
27
transaction cost problems.
do develop
"collaborative
Finally,
Simonin and Helleloid
[52]
know-how" through experience
find that firms
in international
strategic alliances.
If
firms
do
learn to better
manage
collaborations,
one would expect
would
find that firms with experience in prior collaborative ventures
less
to
place
value on governmental assistance in controlling opportunism than firms
without prior experience do.
how
instance,
completed.
to set
An
up
An
experienced firm
the initial agreement or to
may
make
feel
it
knows,
for
sure projects are
inexperienced firm, on the other hand, should better
appreciate the government performing these roles. This leads us to our
first
hypothesis:
HI: Firms with prior experience
in collaborative
R&D
will place less
value on governmental help in decreasing transaction costs than
firms without any prior experience.
An
alternative hypothesis, however,
in collaborative
R&D
have
first
is
that firms with prior experience
hand knowledge
of the difficulties
encountered in organizing and operating such a collaboration. The
observation that most cooperative endeavors do not succeed in the long run
[32, 33]
could suggest that firms tend to underestimate the difficulties
involved with inter-firm cooperation.
Consequently, firms that have
experienced the challenges involved in cooperation might place more value
on government
assistance than firms without prior experience.
prior experience have a basis for comparison
role
and may
Firms with
better appreciate the
performed by the government. This rationale leads
to a second,
alternative hypothesis:
H2: Firms with prior experience
in collaborative
value on governmental help
in
R&D
will place
more
decreasing transaction costs than
firms without any prior experience.
To
test these
hypotheses, firms were grouped into those that have
participated in prior research collaborations (labeled "with prior experience")
and those
for
whom
the Societa
was
their first collaborative experience
(labeled "without prior experience.")
groups are presented
in Table 4.
Two
The
results of
comparing these two
types of analysis were performed:
1)
28
Comparing
performed
relative importance:
for the
Provide Funding
statistic.
2)
This analysis
compared
to the
an extension of the analysis
Within each group, the mean of
whole population.
is
is
mean
of each other variable using a
Comparing absolute importance: The mean
firms with prior experience
experience using a
t
is
compared
to the
mean
t
of each variable for
for firms without prior
statistic.
— Insert Table 4 about here —
6.3.1
Comparing Relative Importance
comparing firms with and without prior experience,
In
we
find that the
two hypotheses depends upon whether we consider
validity of our
government's institutional mechanisms or administrative mechanisms.
When
examining the importance of
we
funding,
find support for the
experience in joint research, the
Cooperation
first
institutional
mean importance
up
If
for
framework
we examine
on
for
their
own and
R&D, on
experience.
no
between
significant difference
can learn
don't need the government to
we
find support
For firms with prior experience in
average, administrative mechanisms were as
which was rated
overall sample,
is
Administrative mechanisms, however,
important as funding in driving
Conflicts,
for
them once they have experience.
our second, alternative hypothesis.
collaborative
Framework
result supports the notion that firms feel they
collaborations
establish a
of Establish
lower than the importance of Provide Funding. For firms
is
two means. This
to set
relative to
hypothesis. For firms with prior
with no prior experience, however, there
the
mechanisms
was not
a firms decision to join a Societa.
as significantly lower that Provide
Funding
significantly lower for the subset of firms
For firms with no prior experience, however,
all
Avoid
for the
with
of the
administrative mechanisms, including Avoid Conflicts were rated as
significantly less important than funding.
mechanisms are concerned, firms with
Thus, as
far as
administrative
prior experience placed
more
relative
value on governmental help in decreasing transactions costs than firms
without experience did. Perhaps firms with experience in other consortia
in fact, better able to appreciate the role the
ex-post cooperation
the experience
much
as they
to.
among
in facilitating
partners since they have something to
They appreciate
do funding.
government plays
this part of
are,
compare
government's contribution as
29
6.3.2
Comparing Absolute Importance
When comparing
and without
whether
prior experience,
we
find that the results also
institutional
one
analysis: hypothesis
depend strongly on
mechanisms, results are consistent with the prior
supported.
is
Establish
Framework
for
rated lower by firms with prior experience than by those with
experience.
framework most highly
handle
the details of organizing one.
have
since they
prior
to
Firms with experience in
and perhaps can
agreements as a starting point for future
their prior collaborative
agreements.
no
knowledge of how
less
collaborations have a better sense of the important issues,
even use
Cooperation
Again, firms without experience setting up a collaboration value
the preset
all
When
mechanisms are investigated.
institutional or administrative
examining
is
the absolute importance of each factor for firms with
They therefore place
less
value on the government performing
this role.
An
support
examination of administrative mechanisms provides very weak
for the
second hypothesis. While not
average rating of administrative mechanisms
experience than for firms without, lending
statistically significant, the
is
higher for firms with prior
some support
to the conclusions
of the prior analysis.
Finally,
we
have significantly
find that firms with prior experience
reduced expectations regarding the importance of receiving governmental
funding.
The absolute importance of Provide Funding
for firms
with prior experience in
a collaboration
is
significantly lower
than for firms without prior
experience.
— Insert Table 5 about here —
We
therefore see that the validity of Hypothesis
depends upon whether one
mechanisms employed by
5.
is
discussing institutional or administrative
the government.
Results are
For institutional mechanisms such as establishing
cooperation, Hypothesis
1
appears valid.
experience can, indeed learn
and Hypothesis 2
1
how
It
a
summarized
framework
would seem
to organize a collaboration
at controlling ex-post
Hypothesis 2 appears more
valid.
for
that firms with
place less value on the government performing that role.
mechanisms aimed
in Table
up
front,
and
For administrative
opportunistic behavior, however,
Firms with prior experience appreciate
how
30
difficult
to
it is
manage
a collaboration ex-post,
Administrative mechanisms aimed at controlling
governmental assistance.
ex-post opportunism
may
and place more value on
therefore be
more important and should, perhaps,
more emphasis from policy-makers. 17
receive
7.
In light of the large
Conclusion
number
of firms participating in collaborative
research projects, defining an appropriate role for government in such
projects
is
While
a salient issue for policy-makers.
traditionally, discussion
has focused on determining a suitable level of government funding for
collaborative
R&D,
the purpose of this paper
government, one of
role for the
Using
have shown how the government, through
framework and then helping
to
fosters cooperation
an additional
R&D
a transaction cost
through
framework we
and administrative
institutional
to decrease both the ex-ante
costs associated with collaborative
government
to articulate
facilitating collaborative
overcoming opportunistic behavior.
mechanisms, can help
was
and ex-post transaction
R&D. By providing an
up-front
monitor and enforce agreements, the
among
firms.
This role
was evident
in the
organization and operation of the Italian government-sponsored Societa di
Through
Ricerca program.
17 There are
many
a
survey of firms participating in a Societa,
we
possible alternative explanations for the difference found between firms
We have ruled out as many of these rival hypotheses as
with and without prior experience.
and summarize those results here:
When the sample is split into
the firms that have not participated in other
possible,
1.)
Firm
Size:
large
and small
firms,
based on 1990
sales,
joint research are classified as "small."
all
of
To ensure
was not simply a proxy for firm size, the analysis was repeated using only the
population of small firms; the same pattern of differences between firms with and without
prior experience was found. Firm size is therefore not responsible for the results.
2.) Type of Societa, Coordinating or Operating: All of the firms without prior experience are
members of Coordinating Societa. To ensure that experience was not simply a proxy for Societa
type, the analysis was repeated using only the population of firms belonging to Coordinating
Societa; the same pattern of differences between firms with and without prior experience was
found. The type of Societa is therefore not responsible for the results.
3.) Firm tenure with the Societa
There is no statistically significant difference between the
tenure of firms with prior experience vs. those without. There is also no statistically
significant difference between the number of projects completed within the Societa. Tenure is
therefore not responsible for the results.
4.) Firm geography, north vs. south: There is not a substantial difference in the composition of
the firms with and without experience, in terms of geographic dispersion. Firm geography is
therefore not responsible for the result.
that experience
:
5.)
Societa Industry:
between the ratings
When
the sample
is
split
by Societa, there
of the reasons for participation.
responsible for the result.
is
no significant difference
Societa industry
is
therefore not
31-
were able
to confirm that firms recognize
performance of
Our
this role.
and value government
specific findings are
summarized
as follows:
•
For the overall population, firms rated government's role in guaranteeing
project completion, establishing long term relationships, and facilitating
networking just as highly as providing funding in driving their decision to
perform research through a Societa.
•
Firms with prior experience in
collaboration ex-ante.
how
joint research learn
to organize the
They placed significantly less value on government's
framework for cooperation than firms
institutional role in establishing a
with no prior experience
•
did.
Firm's with prior experience in joint research do not learn, however, to
Instead, they become more cognizant of
government performing that role. They rated administrative mechanisms
aimed at ex-post transaction costs at least as important as funding in their
decision to perform research through a Societa. In contrast, firms without
prior experience rated funding as significantly more important an
influence than administrative mechanisms.
control ex-post opportunism.
These results raise several important questions regarding
government's involvement in collaborative research.
First, this
research
suggests that government can play an important role as a quasi neutral third
party.
Government, however, often has
its
own
agenda.
It
may
voice
opinions about the content of the collaboration, favoring specific approaches
and
Thus, under some circumstances
solutions.
this role.
it
might not be able
In the case of the Italian Societa di Ricerca,
be relatively neutral.
It is
to fulfill
government appears
to
interested in the success of these Societa but not in
specific content issues.
Furthermore,
for
it is
perceivable that government
example, large firms with which
it
may
favor
some
actors,
frequently interacts, over others.
Consequently, small firms might no longer perceive government as a neutral
actor
could
— they actually might oppose
shift the
by Brockhoff
government involvement because
balance of power even more to the large firms.
[8], this
firms in Germany.
perception
Again,
this
is
One
is
of the goals o: the
more
As suggested
does not appear to be the case with the Societa
program
is,
we found no
in fact, to
technology transfer to smaller firms. Perhaps with
government
it
held by several small technology intensive
Based on our interviews with small firms
di Ricerca.
sentiment.
a
similar
encourage
this in
mind, the
careful about ensuring equitable treatment.
32
Finally, there
is
the issue of the cost of having the
Government programs have
involved.
to
a
few employees devoted exclusively
to the
In fact, relative to outright funding of technology
development, sponsoring collaborations
way
of growing, creating large self-
be minimal. The existing administrative structure of
IMI was used with the addition of
Societa program.
way
In the case of the Societa program, however, the
perpetuating bureaucracies.
overhead appears
a
government
may be viewed
as an inexpensive
to leverage private resources.
While government funding
imply that government
is still
may want
an important
to increase its
issue, these results
emphasis on supporting
cooperation by helping to control opportunism, especially ex-post monitoring
and enforcement.
role
and
Through
directly exploring
effectively
explicitly
ways
acknowledging the importance of
to best
perform
to best structure a collaboration that incorporates
government can more
how
an independent party
insights.
The government may not be
Other third
the
Additional research, for instance, on
encourage cooperation.
promises to provide useful
it,
this
the only player able to play this role.
parties, for instance, industry associations or
independent
may be in a position to help
agreements among firms. While government
research institutions like universities,
set up,
monitor or enforce
has some
inherent advantages in fulfilling the institutional role of supporting
interfirm cooperation, other institutions might be in a better position to
fulfill
the administrative role
shown
in this paper,
collaborative
R&D.
due
to specific
knowledge advantages. As
both might contribute significantly to the success of
-33-
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