Incentive Mechanism Design for R&D Outsourcing with Technological Uncertainty

Under the assumption that there is technological uncertainty in R&D, and the success probability of R&D and market return is relative to individual resource committed on them, it is studied how to use profit sharing arrangement as incentive mechanism to reduce moral hazard in R&D outsourcing. The willingness to cooperate and commitment policies of both outsourcer and supplier with fixed sharing arrangement, proportional sharing arrangement, or mixed sharing arrangement are investigated, and the mix sharing arrangement is improved, furthermore, the optimal profit sharing arrangement for different condition is found out through theoretical analysis, under which the probability of R&D outsourcing and the profit of both outsourcer and supplier will be raised. Finally, a numerical example is given to analyze the effect of market returns and distribution proportion on the optimal profit sharing arrangement, as well as the commitment policies and profits of both sides.