Skip to main content

Research Repository

Advanced Search

Agency and strategic contracts: Theory and evidence from R&D agreements in the pharmaceutical industry

Guo, Di; Hua, Xinyu; Jiang, Kun


Di Guo

Xinyu Hua

Kun Jiang


© 2017 Elsevier B.V. We examine the use of strategic rights in research and development (R&D) agreements between a client and an agent, when an entrant may compete with the client for the license of non-contracted discoveries developed by the agent. The agent puts effort either in the contracted project, or into other R&D activities which can result in non-contracted discoveries. Strategic rights help the client and the agent extract rent from the entrant, and also motivate the agent to place effort into the contracted project. Accordingly, firms are more likely to adopt strategic rights when the likelihood of entry is larger. Moreover, strategic rights and termination rights are substitutes in mitigating agency problems. By investigating R&D agreements between pharmaceutical clients and bio-tech agents, we find consistent evidence of the positive impact of entry threat on the use of strategic rights, as well as evidence of the substitution between strategic rights and termination rights.


Guo, D., Hua, X., & Jiang, K. (2017). Agency and strategic contracts: Theory and evidence from R&D agreements in the pharmaceutical industry. International Journal of Industrial Organization, 54, 37-64.

Journal Article Type Article
Acceptance Date Jun 14, 2017
Online Publication Date Jun 21, 2017
Publication Date 2017-09
Deposit Date Feb 27, 2018
Publicly Available Date Jun 22, 2019
Journal International Journal of Industrial Organization
Print ISSN 0167-7187
Electronic ISSN 1873-7986
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 54
Pages 37-64
Keywords Agency; Entry threat; Strategic right; Termination
Public URL
Publisher URL
Contract Date Feb 27, 2018


Downloadable Citations