Abstract
A subset of all R&D joint ventures is characterized by actions and payoffs most similar to a Prisoners’ Dilemma game. Firms may cooperate or defect in the venture. When it is unfeasible to obtain independent verification of the venture inputs and outcome, then the dominant solution to the Prisoners’ Dilemma – mutual defection – results. This paper proposes the use of a new revelation mechanism that truthfully determines whether defection has occurred in order to trigger penalties. Cooperation results. A simplified version of the solution is tested experimentally and shows a significant improvement in cooperation level results.
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