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

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

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Biotechnology
Joining
Drug products
Hazards
Agglomeration
Productivity
Specifications
Governance mechanisms
Governance
Alliances
Safeguards
Externalities
Industry
Knowledge spillovers
Rivalry
Pharmaceuticals
Geographic location
Professional organizations
Hazard
R&D partnerships

Keywords

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

Cite this

Devarakonda, Shivaram ; McCann, B. ; Reuer, Jeffrey. / Marshallian forces and governance externalities : Location effects on contractual safeguards in R&D alliances. In: Organization Science. 2018 ; Vol. 29, No. 6. pp. 1112-1129.
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Marshallian forces and governance externalities : Location effects on contractual safeguards in R&D alliances. / Devarakonda, Shivaram; McCann, B.; Reuer, Jeffrey.

In: Organization Science, Vol. 29, No. 6, 12.2018, p. 1112-1129.

Research output: Contribution to journalArticleScientificpeer-review

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