Real Options in R&D Projects : Agency Conflicts in Partially Complete Markets

The real-options aspect of R&D investment can be enriched through the integration of explicit modeling for knowledge value dynamics as well as agency-theoretic analysis. Our objective is to combine the market-related dynamics of the demand for R&D products with firm specific organizational dynamics of knowledge accumulation and value creation through knowledge. This objective is accomplished using the partially complete markets framework in real options. We introduce the knowledge-related significance of option pricing parameters and show how these parameters affect investment policies and agency conflicts in R&D and intellectual capital decision-making