The efficient governance of information-production is analysed in the context of the bio-technology industry. Here primary R&D generates pure abstract information on the nature of biological solution concepts, while secondary R&D generates commercial products marketable to consumers.
It is argued that the optimal industrial
structure in these circumstances is for a unitary integrated firm to manage
both stages of R&D making use of a single property right. It is
shown that the impact of a second property right in the industry is to shape
the terms of agreement in the creation of this integrated firm. Under reasonable assumptions, the creation of a second property facilitates the
creation of this efficient integrated industry, but there is little profit-sharing
between the two stages of the R&D sector. When the South is the
primary location of the first stage, and the North is the primary location of
the second, this indicates that the creation of another property right may have
positive efficiency implications but few distributional ones. Efficient
governance therefore requires the introduction of a second property right in
order to be able to achieve efficient integration.
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