A Tale of Two Literatures: Transaction Cost and Property Rights in Innovation Outsourcing

This paper investigates the relative importance of property rights (PR) and transactions cost (TC) factors in driving the decision of firms to outsource innovation. The TC literature explains a small part of outsourcing decisions (cost saving motives) while the PR literature deals with revenue maximisation. Using data for over 8,000 firms from the UK Community Innovation Survey, we find that PR variables dominate over TC variables. Our results suggest that the decision to outsource innovation is mostly driven by the ability of firms to control information leakages, less so by cost motives.