ORGANIZATION DESIGN AND INFORMATION-SHARING IN A RESEARCH JOINT VENTURE WITH SPILLOVERS.

The article studies a non-tournament model of process innovation with spillovers in the research and development (R&D) process in Great Britain. While the market gives private firms incentives to engage in R&D, competition for potential rents may result in firms doing less R& D than is socially optimal. Such competition is a feature of the non-tournament model of R&D, which has been used widely in the literature to analyze R&D competition. Economist P. Dasgupta and J. Stigtitz have used the model to show that while the market economy may be characterized by excessive expenditure in aggregate on R&D, each firm may spend too little with the result that the degree of cost reduction is less than is socially desirable. This situation may be further complicated by the presence of spillovers. The effect of this depends on how significant the spillover is and on what type of research is pursued. Finally, R&D output has many of the features of a public good and, in the market system, firms may not transfer their R&D output to other firms that could usefully use it.