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.
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.
