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Subcomponent Innovation and Moral Hazard: Where Technological Progress Meets the Division of Labor

Polk, Charles W. (1994) Subcomponent Innovation and Moral Hazard: Where Technological Progress Meets the Division of Labor. Social Science Working Paper, 895. California Institute of Technology , Pasadena, CA. (Unpublished)

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I model the technical innovation of a final good as a process of incremental enhancement due to Research and Development (R&D) efforts undertaken on subcomponents to the final good. R&D contracting is analyzed within various principal I agent structures. I identify a principal who jointly values the performance capabilities of the subcomponent undergoing R&D and the funds available for other subcomponents; thus, he does not have a transferable utility function. I justify and characterize a performance seeking agent in addition to the conventional profit seeking agent. The information environment and the motivational properties of the principal and agent significantly affect the form and existence of optimal R&D contracts. I draw insights for private and public sector industrial organization.

Item Type:Report or Paper (Working Paper)
Additional Information:This paper is based on the author's Ph.D. thesis, "The Organization of Production: Moral Hazard and R&D," Caltech, May 1993. The author acknowledges the financial support of the Jet Propulsion Laboratory's Flight Projects Office and Director's Discretionary Fund along with the Program on Organization Design within the Division of Humanities and Social Sciences at Caltech. The responsibility for all errors and inconsistencies is borne solely by the author.
Group:Social Science Working Papers
Funding AgencyGrant Number
Caltech Division of Humanities and Social SciencesUNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:895
Record Number:CaltechAUTHORS:20170822-140429442
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80685
Deposited By: Jacquelyn Bussone
Deposited On:23 Aug 2017 18:14
Last Modified:03 Oct 2019 18:33

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