Structuring Public–Private Research Partnerships for Success

Structuring Public–Private Research Partnerships for Success

Empowering University Partners

Gordon Rausser, Holly Amedon and Reid Stevens

As funding for universities and governmental research units has declined, these institutions have turned to the private sector to augment their research and development budgets. This book presents a framework for structuring public-private research partnerships that protect both these institutions’ academic freedom and the private firm’s corporate interests. This formulation is developed using insights originating from the incomplete contracting and collective decision making literatures. The book presents a number of template designs for a variety of research partnerships.

Chapter 8: Incomplete contracts and control premiums

Gordon Rausser, Holly Amedon and Reid Stevens

Subjects: economics and finance, financial economics and regulation, public finance, public sector economics, politics and public policy, public policy


Here we present the key insights from the finance literature on incomplete contracts and control premiums, or decision rights, in the generation of private and public goods that emerge from the research and development process. A contract is incomplete if there is a set of events that can influence the partnership that has not been anticipated and addressed in the initial contract. The allocation of control rights through a public–private partnership (PPRP) contract can determine whether a partnership achieves efficiency as well as an equitable distribution of partnership benefits. We present the optimal allocation of control rights among the parties and review both theoretical and empirical literature on incomplete contracting. This literature supports the notion that control rights are a crucial issue in public–private research agreements and that the balance of these rights should be tied to the valuation, and hence overall objectives, of the PPRP.

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