There is a higher level of information asymmetry between a buying firm and a supplier in an innovation outsourcing context, as follows: - There is more uncertainty about the supplier's product innovation and development capability. Adverse selection, where an incapable supplier may pretend to be capable, is a risk. - There is more uncertainty about the supplier's behavior during the innovation process. The outcome is less predictable and thus less contractible. There is also a moral hazard. For example, if the project fails, the supplier may claim that the failure is not due to a lack of effort, but rather to a lack of luck. Outsourcing can take more complex formsfrom a hands-off approach, where the supplier does everything from design to production, to a hands-on approach, where the buyer co-innovates with the supplier. When outsourcing innovation, the buyer needs to consider how the supplier handles the intellectual property used in, or coming out of, the innovation process. What is the trade-off in the innovation process of each supplier? What are the differences between cultural laws and patent laws and how these differences affect GM