Abstract: o solve the problems of prevention and incentive of service providers’ moral hazard in R & D outsourcing, this paper designed three kinds of R&D outsourcing contracts, which are rewarding the success, punishing the failure, and linking rewards and punishment with considering the service providers’ own capital restrictions, and then the feasibility and effectiveness of this three kinds of contracts were compared to get the optimal choice of their practical conditions. Research shows that the contract which links rewards and punishment together is completely equivalent to the rewards contract or the punishment contract, while the financial strength of service providers is the key factor which can affect the feasibility and effectiveness of the contract. Specifically, when the service providers have poor financial strength as well as a large debt, the reward and punishment contracts are not feasible, and the clients should not outsource R&D projects to such enterprises. As the financial strength of service providers increases and the debt reduces to a certain extent, the punishment contract is first feasible. Then, the financial strength of service providers keeps on increasing to a certain degree, the reward contract will be feasible, but the effectiveness of punishment contract is better than reward contract. Until the financial strength of service providers is powerful enough, the reward contract and punishment contract are both feasible, and there is no difference between them.

Key words:  R&D outsourcing, moral hazard, capital restriction, rewarding success, punishing failure