Marshallian forces and governance externalities: Location effects on contractual safeguards in R&D alliances

Shivaram Devarakonda, B. McCann, Jeffrey Reuer

Research output: Contribution to journalArticleScientificpeer-review

3 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)1112-1129
JournalOrganization Science
Volume29
Issue number6
DOIs
Publication statusPublished - Dec 2018

Keywords

  • strategic alliances and networks
  • interorganizational relationships
  • transaction cost economics
  • agglomeration

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