Concubinage or marriage? Informal and formal cooperations for innovation

We investigate the determinants of firms' choices between different modes of vertical cooperation for innovation. Based on survey data on German innovating firms, we state that informal cooperation is both, more prevalent and more important than formal cooperation. We only find weak empirical evidence for the relevance of incoming knowledge spillovers for formal as well as for informal cooperation. In contrast, a firm's ability to protect its proprietary innovations, i.e., to limit outgoing knowledge spillovers, has a positive effect on a firm's propensity to engage in formal and informal cooperation at the same time. It does not affect, however, the probability of cooperating informally alone. Large firms, firms that operate a R&D department and firms that are involved in costly R&D projects tend to cooperate formally. Moreover, continuous R&D, which may reflect firms' absorptive capacities, and the innovation dynamics at the industry level do have a positive impact on vertical cooperations in general.