The Optimal Incentive Contract for Collaborative Knowledge Creation

In knowledge alliances, a typical form is leader-subordinate alliance, where leader dominates knowledge creation, followed by subordinates. In the alliance, subordinates tend to become opportunistic free-riders who make fewer efforts while harvest more than their fair share of benefit. This behavior will harm the performance of the whole alliance, especially that of the leader. In order to encourage the subordinates to act in line with the expectation of the leader, we models collaborative knowledge creation as the principal-agent game. Using the game theoretic framework, we attempt to find the optimal incentive contract that induces the subordinates to act in the best interests of the leader. Under the assumption of one-time collaborative knowledge creation, we use a static principal-agent model, specifically called as state-space formulation. To make the model more practical, we propose particular functional forms based on the researches of Samaddar and Gian-Italo. By solving the maximization problem of the model, we are able to get the optimal incentive terms. In addition, from the equations derived from the model, we make observations about some factors affecting the contract, including degree of uncertainty of the leader's gain, risk preference and marginal cost of the subordinates.