The management of innovation: Experimental evidence

We report data from a laboratory experiment with 576 participants that was designed to test Aghion and Tirole's (1994a) management of innovation theory which is based on the Grossman-Hart-Moore property rights approach. A research unit and a customer can invest to increase the probability of making an innovation. When the innovation is made, the parties bargain over the division of the revenue. In line with the theoretical predictions, we find that ownership matters for the division of the revenue and the investments. However, communication can mitigate Aghion and Tirole's (1994a) concern that the customer will not relinquish ownership to the cash-constrained research unit.