Modelling Agricultural Public R&D Cofinancing Within A Principal-Agent Framework. The case of an Italian region

This paper analyses how a public institution chooses the optimal contract (cofinancing rate) in funding agricultural R&D research projects. A theoretical model is developed within a principal-agent framework taking into account the asymmetric information both players have to handle. The researcher (the agent) initially does not know the cofinancing granted by the funding institution (the principal). This latter, in turn, only observes some objective features of the researchers and of the selected research projects and, ex post, the research outcome, but not the agent's actual effort on the project. The principal uses the available information to offer the cofinancing rate (the contract) that, under specific contractual clauses, induces the agent's effort that maximizes principal's utility. The model eventually assumes the form of a Stackelberg-type game. An empirically testable relation is also derived from the theoretical model and is then applied to the agricultural R&D programme funded by the Italian region Emilia-Romagna over years 2001-2006.