How to cite a book chapter written by an author who is not the editor or author of the book with BibTeX?

use

@inbook{test,
  author={Grandstrand, O.},
  year= 2004, 
  chapter={Innovation and Intellectual Property Rights}, 
  editor = {J. Fagerberg and D. C. Mowery and R. R. Nelson}, 
  title= {Oxford Handbook of Innovation}, 
  publisher= {Oxford University Press},
  address= {Oxford}, 
}

with biblatex and style authoryear I'll get:

Perhaps not exactly how you want it to appear (that requires probably selecting the right bibtex style) but here is something close with the standard:

begin{filecontents}{test.bib}
@inbook{ X,
author = {O. Grandstrand},
chapter = {Innovation and Intellectual Property Rights},
crossref = {Y}
}

@book{ Y,
editor = {J. Fagerberg and D.C. Mowery and R.R. Nelson}, 
title      = {Oxford Handbook of Innovation},
booktitle = {Oxford Handbook of Innovation},
publisher = {Oxford University Press},
address = {Oxford},
year = 2004
}
end{filecontents}

documentclass{article}

begin{document}

nocite{*}

bibliographystyle{plain}
bibliography{test}

end{document}

This results in

There are two reference here (both the chapter and the book) because I use notcite on all antries. If just the chapter is cited then the result would be

The problem is that most if not all styles (that I know of) do not use both author and editor in a single entry even though it would make a lot of sense here. They only do that for @inproceedings and @incollection (I see that you found the latter by now yourself).

By default, BibTeX adds a separate citation to the whole book cross referenced when there are 2 or more different citations that crossref a complete work (even if the complete work is not explicitly cited anywhere. On modern BibTeX implementations this can be customized when running BibTeX by using the switch --min-crossref=<number>.

I believe that the entry type you want to use is called @incollection.

Back-filling information for the author's and editors' first names as well as the chapter and pages fields, the full entry could be as follows:

@incollection{grandstrand:2004,
  author      = "Ove Grandstrand",
  title       = "Innovation and Intellectual Property Rights",
  editor      = "Jan Fagerberg and David C. Mowery and Richard R. Nelson",
  booktitle   = "The Oxford Handbook of Innovation",
  publisher   = "Oxford University Press",
  address     = "Oxford",
  year        = 2004,
  pages       = "266-290",
  chapter     = 10,
}

Using the plain bibliography style would generate the following typeset entry:

Addendum: If you use the chicago bibliography style, you'll get:

Here's the code used to generate the two preceding screenshots:

RequirePackage{filecontents}
begin{filecontents}{mybib.bib}
    @incollection{grandstrand:2004,
      author      = "Ove Grandstrand",
      title       = "Innovation and Intellectual Property Rights",
      editor      = "Jan Fagerberg and David C. Mowery and Richard R. Nelson",
      booktitle   = "The Oxford Handbook of Innovation",
      publisher   = "Oxford University Press",
      address     = "Oxford",
      year        = 2004,
      pages       = "266-290",
      chapter     = 10,
    }
end{filecontents}

documentclass{article}
bibliographystyle{plain} % or: "chicago"
usepackage{natbib} % a citation management package

begin{document}   
nocite{*}
bibliography{mybib}
end{document}

I tried using CROSSREF, but I found that the nocite{*} generated too many entries. I don't want all entries in my BIB file to show up in the References section of my paper. The problem is that, without nocite{*}, the book which contains the chapter/section that I'm citing does not show up. I managed to solve this by citing the book from within the phantom command. So in the context of Frank Mittelbach's example, I would have the commend phantom{cite{Y}} somewhere in my document. I placed it before the cite{X} (the chapter/section within book Y in Frank Mittelbach's example).

Afternote: Darn. It didn't really have the desired effect. I have unwanted white space where the citation would have been made. This is exactly how phantom should work, so I don't know what I was thinking. Can anyone suggest another way to hide the dummy citation to Y? The only reason why it's there is so that the CROSSREF in X is properly handled. Maybe a way to impose a zero-size font onto the dummy citation? Using fontsize and selectfont to specify 0pt causes an error, so I tried making the dummy citation white: textcolor{white}{ fontsize{1pt}{1pt}selectfont cite{Y} }. This only makes the square brackets around the bibliography entry number white.

I guess @incollection is the way to go.