Marshallian forces and governance externalities: Location effects on contractual safeguards in R&D alliances
Devarakonda,S.V. McCann,B. Reuer,Jeffrey
Devarakonda,S.V.
McCann,B.
Reuer,Jeffrey
Abstract
We examine the impact of geographic location of alliance activities on the design of safeguards in contracts governing research and development (R&D) partnerships. Joining research on agglomeration and alliance governance, we argue that the Marshallian agglomerative forces at work in a given location produce governance-related externalities that extend beyond productivity-related externalities considered in previous research. We investigate how location characteristics linked to Marshallian forces, such as local knowledge spillovers, R&D rivalry, dense industry employment, and the strength of professional organizations, have an impact on the specification of formal governance mechanisms. In particular, these Marshallian forces have a bearing on formal governance mechanisms that safeguard the execution of the R&D partnership, such as joint administrative interfaces and termination provisions. We analyze R&D partnerships between biotechnology and pharmaceutical firms and find that misappropriation hazards arising from greater knowledge spillovers and R&D competition in the region where R&D activities are located promote the use of these formal governance mechanisms in R&D partnerships. We also find that factors supporting thick interpersonal networks, such as the intensity of sectoral employment and the strength of professional bodies, reduce the use of formal governance mechanisms in R&D partnerships.
Description
Date
2018-12
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Volume Title
Publisher
Research Projects
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Keywords
strategic alliances and networks, interorganizational relationships, transaction cost economics, agglomeration, SDG 9 - Industry, Innovation, and Infrastructure
Citation
Devarakonda, S V, McCann, B & Reuer, J 2018, 'Marshallian forces and governance externalities : Location effects on contractual safeguards in R &D alliances', Organization Science, vol. 29, no. 6, pp. 1112-1129. https://doi.org/10.1287/orsc.2018.1221