Early or late R&D inbound alliance? The impact on knowledge creation

In the R&D supply chain firms can agree an inbound alliance at different times along the process; this decision will impact the supplier’s effort and then the innovation achieved at the end of the agreement. Supplier’s effort is assumed as non-observable then it cannot be constrained contractually. Earlier contracts will ask for a greater cumulated effort although they offer risk-sharing opportunity; later contracts see supplier with a stronger exante bargaining power position, due to shorter (and then less risky) contract length and experience acquired in the previous period in her own. With the hypotheses of maximum innovation value achieved when both partners exert the maximum affordable efforts and von Thünen’s research production function, later contract allow to target a higher value of innovation when one of the partner is in charge of the explorative burden of the research and she wants to maximize her payoff.