University-firm collaboration in basic research

Abstract

This paper considers four different scenarios for non-cooperative and coordinated basic research between a university and a firm: a one-stage game, a two-stage game with grants, a research cartel and a cartel with research-specialized university. The university and the firm conduct research in order to increase their probability of success. We compare the performance of the two-stage game with grants and the one-stage basic game. The former leads to a win-win outcome relative to the latter and the effective probability of successful research (a proxy for social welfare) is also higher. We also consider two models of basic research consortium, a research cartel and a scenario specializing research to the university but in the context of a partnership. Both coordinated scenarios may yield a higher total profit and higher probability of success for research than either of the non-cooperative scenarios. The analysis suggests a central role for monetary transfers from the firm to the university, both in the two-stage game with grants and in the two coordinated scenarios for basic research.