We show that technology spillovers shift the composition of corporate research and development (R&D) by promoting innovation based on the exploitation of existing knowledge, while disincentivizing innovation that explores new areas and breaks new ground. Accordingly, firms facing large...

This paper examines the optimal incentive scheme in motivating people to innovate under ambiguity. When an innovation's prospects are ambiguous, the use of extrinsic, high-powered incentives can lead the agent's beliefs about the project's outcome to deviate from that of the principal's, which...