engleski

Co-development ventures : Optimal time of entry and profit-sharing

We find the optimal time for entering a joint venture by two firms, and the optimal linear contract for sharing the profits. We consider three contract designs, the risk-sharing, the timing-incentive and the asymmetric contract decisions design. An important result we establish is that if the firms are risk-neutral and if the cash payments are allowed, all three designs are equivalent. However, if at least one of the two firms is risk averse, the optimal contract parameters may vary significantly across the three designs and across varying levels of risk aversion, as illustrated in our numerical exercises. We also analyze a dataset of joint biomedical ventures, that exhibits general agreement with our theoretical predictions. In particular, both royalty percentage payments and cash payments are mostly increasing in the smaller firms length of experience, and the time of entry happens sooner for more experienced small firms

real options; joint ventures; optimal contracts; entry times; risk sharing

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