Contractual Complexity of R&D Alliances - A Two-Dimensional Analysis of the Determinants of Contractual Complexity

There has been little systematic theoretical or empirical analysis on how inter-firm contracts are actually designed. This is problematic because the structure of a contract has a large influence on the extent to which firms will benefit from a contractual relationship. We present a novel perspective on contract design using the construct of contractual complexity. In contrast to previous studies on contractual complexity that only use objective measures, we argue that the degree to which a contract imposes a cognitive load upon contract parties should be taken as a second important dimension of contractual complexity. Using a sample of nearly 300 R&D contracts in the biopharmaceutical industry, we develop a conceptual model of complexity that incorporates both dimensions of contractual complexity through which we investigate to what extent firm characteristics, transactional characteristics and the organizational routines of firms affect contractual complexity. We find that the two dimensions of complexity point at both overlapping and different aspects of the complexity of contracts. Organizational routines, information asymmetry, and asset specificity of transactions have somewhat comparable effects on both dimensions of contractual complexity, whereas the strategic importance of transactions and R&D capabilities asymmetry of firms affect only one dimension of contractual complexity