Contracting for the unknown and the logic of innovation

Grandori, A. and Furlotti, M. ORCID: 0000-0001-6750-9547, 2019. Contracting for the unknown and the logic of innovation. European Management Review, 16 (2), pp. 413-426. ISSN 1740-4754

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This paper discusses the components of contracts adequatefor governing innovation, and their microfoundations in the logic of innovative decision processes. Drawing on models of discovery and design processes, distinctive logical features of innovative decision making are specified and connected to features of contracts that can sustain innovation processes and do not fail under radical uncertainty. It is argued that if new knowledge is to be generated under uncertainty and risk, 'relational contracts', as usually intended, are not enough and a more robust type of contracting is needed and it is actually often used: formal constitutional contracts that associate resources, leave their uses rationally unspecified, but exhaustively specify the assignment of residual decision rights and other property rights, and the decision rules to be followed in governance. The argument is supported by an analysis of a large international database on the governance of multi-party projects in discovery-intensive and design-intensive industries.

Item Type: Journal article
Publication Title: European Management Review
Creators: Grandori, A. and Furlotti, M.
Publisher: John Wiley
Date: 2019
Volume: 16
Number: 2
ISSN: 1740-4754
Divisions: Schools > Nottingham Business School
Record created by: Linda Sullivan
Date Added: 25 Apr 2018 15:15
Last Modified: 19 Jan 2021 09:46

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