R&D Choice in Restructured Industries : In-House v/s Collaborative Research in the Us Electricity Industry

This paper studies the impact of market restructuring on the character of research and development (R&D) expenditures. Using a political economy approach, we consider the likely differences in internal and collaborative R&D activities under regulatory and market regimes, and test the predictions on R&D investments by a panel of investor owned electric utilities between 1989 and 1997. We find that spending on internal projects declines with the uncertainty associated with restructuring, but recuperates for companies in states that transition to relative competitive market regimes. Alternatively, external R&D expenditures (outsourced or consortium activities) are initially higher for firms subject to the uncertainty of the policy transition but subsequently decline in restructuring states. Our analysis yields insights into the incentives for firms to perform research internally or to outsource it, and suggests some new guidelines for effective public technology programs