Strategic delegation and risk‐taking in R&D: Partial delegation versus full delegation

Abstract We examine firm's risk‐taking decisions in R&D under two different delegation strategies between partial delegation (PD) and full delegation (FD): FD authorizes both quantity and R&D risk but PD only authorizes quantity. Cournot firms under the FD set higher profit weights at the expected value of cost realization, which can lessen competition, but the R&D risk choice is always lower than the PD. The results are reversed for Bertrand firms, making the FD strategy more beneficial for consumers and society. Finally, endogenous choice of delegation type depends on product substitutability and market size, while the equilibrium choice may not be socially desirable.