On the Firms’ Decision to Hire Academic Scientists

Firms hire scientists to increase their absorptive capacity and generate new knowledge and innovations. In this paper, we analyse a firm’s optimal contracting decisions when scientists have differing tastes for science. The contracted scientist engages in multitasking following her own academic agenda and the firm’s agenda and each task delivers distinct outcomes. Our setting disentangles the productivity and absorptive capacity effects for the firm as well as the preference and opportunity costeffects for the scientists. The productivity effect refers to a scientist’s contribution to profits by improving efficiency or by developing new products. The absorptive capacity effect relates to the ability of the hired scientist to assimilate the knowledge produced elsewhere for the benefit of the firm. The preference effect reflects the fact that scientists, unlike other knowledge workers, have a taste for science and accept lower wages when allowed to pursue a personal academic agenda. The opportunity cost effect captures the fact that top scientists have better options in academia. In a baseline model we show that firms do not reward academic outcomes and only hire top scientists when academia is a poor alternative to joining the private sector. We then extent the analysis allowing for asymmetric information about the scientists’ taste for science, a nominal effort constraint and the lack of complementarity between research activities.

This item originally published January 2018. The current version reflects significant revisions made in March 2020.