Incomplete contracting in an R&D project: the Micronas case

Systematic empirical evidence on the consequences of incomplete contracts i s meagre, because contracts are often classified as business secrets, and a re accordingly difficult to obtain for research purposes. In this study we employ the extensive information from the life of a Finnish research joint venture, Micronas, during 1980-1992 to cast light on this issue. Of particu lar interest is the principal-agent relationship between the owners and the management of the research joint venture. Our investigation confirms the s trong message of the incomplete contract theory, Hold-up problems are perva sive in R&D projects, and the allocation of power and ownership is importan t to the success of the projects.