Abstract. What motivates some firms to hire star academics? This paper provides a theoretical framework that combines several factors known to influence a firm's hiring decision of scientists capable of conducting both, research and development activities. The targeted type, reflecting the scientist's academic ability, is endogenous. When research and development activities are not strong substitutes, the optimal contract induces the scientist to engage in multitasking and the firm targets applicants with either the highest or the lowest type. Scientist with the lowest ability to conduct academic research are hired in environments where investments in absorptive capacity have low returns, academic publications generate substantial negative externalities for the firm, and/or the academic sector offers desirable outside options. When academic ability is not verifiable, the contract must only appeal to scientists with the targeted ability. Top scientists may need to be overcompensated for their research outcomes while low ability scientists may be overly compensated for their development outcomes. This, in turn, leads the hiring decision to be biased in favour of high-ability scientists when research and development activities exhibit a strong complementarity. By opposition, scientists with the lowest ability are more frequently targeted when the cost of conducting both activities increases.

Highlights

• Theoretical rationale behind the corporate hiring of academic scientists

• Scientists engaged in multitasking have the highest or the lowest academic ability.

• Hiring decision based on absorptive capacity and externalities from publications

•  Academic sector influences the hiring decision as outside option.

• Asymmetric information about academic ability introduces a bias in targeted type.

Keywords: Economics of Science; R&D activities; Academia; Incentive contract; Multitasking; Absorptive capacity