| Description |
Given the trend of globalization, more and more firms are outsourcing their Research and Development (R&D) projects to a second party overseas or domestically. Through outsourcing, firms not only save costs but also build strategic capabilities such as tapping global talents, building partnerships, boosting innovation, and maintaining a lean and flexible operation. These capabilities help shorten the duration of R&D projects and mitigate the risk of failures. However, the complexity of collaborative relationship in outsourcing and risks inherent in an R&D project pose challenges to both the firm who is doing the outsourcing (referred to as the principal) and the firm that the project is outsourced to (referred to as the agent). It is likely that either or both parties have private information regarding their capabilities as well as the likelihood of the success of the project. In addition, the efforts of the firm that the project is outsourced to may be unobservable to the firm who is doing outsourcing. In the dissertation, I investigate whether stage-gate contracts can help firms manage the outsourcing of R&D projects and determine the optimal form of the stage-gate contract when information asymmetry (adverse selection) and unobservable effort (moral hazard) exist. In Chapter 1, I explore the use of stage-gate contracts in the case where the agent has private information and his effort is unobservable. The principal offers multiple contracts to "screen" the agent. The main tool of the analysis is the screening model in the principalagent problem. In Chapter 2, I examine the opposite case, the one where the principle is the firm with the private information (the agent's effort is again unobservable). In this situation a principal may use the stage-gate contract to signal her private information with regard to the new product development project. The main tool of the analysis is the signaling games. In Chapter 3, I investigate the case of bilateral asymmetric information, namely, both the principal and the agent have their own private information on the project. The main tool of the analysis is the screening model and the signaling games. |
