Scientific and Commercial Incentives in R&D: Research versus Development?

This paper proposes a framework to analyze the effects of scientific and commercial incentives in R&D organizations. We build a simple repeated model of a researcher capable of obtaining innovative ideas. Although they reduce the time spent on research, we show that commercialization incentives also affect the choice of research projects. Commercial rewards induce a more intensive search for (ex post) path-breaking innovations, which are more likely to be generated through (ex ante) riskier research programs. We derive the organization's optimal incentive scheme in terms of the researcher's characteristics. We show that organizations should use a high level of commercial incentives for scientists who have strong or weak intrinsic preferences for research. For those with strong preferences, the organization needs to induce development, whereas for those with weak ones, it needs to induce effort