Cvitanić, Jakša and Radas, Sonja and Šikić, Hrvoje (2011) Co-development ventures: Optimal time of entry and profit-sharing. Journal of Economic Dynamics and Control, 35 (10). pp. 1710-1730. ISSN 0165-1889 http://resolver.caltech.edu/CaltechAUTHORS:20120228-151158196
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We find the optimal time for entering a joint venture by two firms, and the optimal linear contract for sharing the profits. We consider risk-sharing, timing-incentive and asymmetric decisions contract designs. If the firms are risk-neutral and the cash payments are allowed, all three designs are equivalent. With risk aversion, the optimal contract parameters may vary significantly across the three designs and across varying levels of risk aversion. We also analyze a dataset of joint biomedical ventures, in which, in agreement with our theoretical predictions, both royalty and cash payments are mostly increasing in the smaller firm's experience, and the time of entry happens sooner for more experienced small firms.
|Additional Information:||© 2011 Elsevier B.V. Received 29 May 2009. Accepted 27 April 2011. Available online 13 May 2011. Research supported in part by NSF Grants DMS 06-31298 and 10-08219, and through the Programme “GUEST” of the National Foundation For Science, Higher Education and Technological Development of the Republic of Croatia. Research supported in part by the MZOŠ Grant 037-0372790-2799 of the Republic of Croatia.|
|Subject Keywords:||Real options; Joint ventures; Contracts|
|Classification Code:||JEL classification: C61; G23|
|Official Citation:||Jakša Cvitanić, Sonja Radas, Hrvoje Šikić, Co-development ventures: Optimal time of entry and profit-sharing, Journal of Economic Dynamics and Control, Volume 35, Issue 10, October 2011, Pages 1710-1730, ISSN 0165-1889, 10.1016/j.jedc.2011.05.001.|
|Usage Policy:||No commercial reproduction, distribution, display or performance rights in this work are provided.|
|Deposited By:||Tony Diaz|
|Deposited On:||28 Feb 2012 23:28|
|Last Modified:||28 Feb 2012 23:28|
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