A comparison of milestone contract and royalty contract under critical value criterion in R&D alliance

This paper attempts to better understand contract type and risk attitude in RD nevertheless, the marketer should offer the first-best contract. Furthermore, investigating the impacts of information asymmetry on the marketer’s profits under two information structures, we find that dual asymmetric information harms the marketer’s profit, especially when the innovator’s effort marginal efficiency is higher. Finally, by comparing the marketer’s profits in two types of contracts, we give the specific regions that milestone contract or royalty contract benefits the marketer better under different information structures.