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Rivalry and the Excessive Allocation of Resources to Research

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  • Pankaj Tandon

Abstract

This article presents a simple probability model of R&D which suggests that competitive firms may overinvest resources in research, even in the face of uncertainty, inappropriability and increasing costs of research. In the presence of uncertainty, some duplication of R&D efforts may be justified because of the increased probability of success that results, but competitive equilibria may be characterized by excessive duplication. Further, when different firms can discover different things, excessive knowledge may be produced, even when each firm individually performs less R&D than is socially desirable. This is a consequence of excessive entry.

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Bibliographic Info

Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 14 (1983)
Issue (Month): 1 (Spring)
Pages: 152-165

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Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:152-165

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Cited by:
  1. Shapiro, Carl, 2007. "Patent Reform: Aligning Reward and Contribution," Competition Policy Center, Working Paper Series qt1qm754rc, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  2. Fissel, Benjamin E & Glibert, Ben, 2010. "Exogenous Productivity Shocks and Capital Investment in Common-pool Resources," University of California at San Diego, Economics Working Paper Series qt1qp1g9ts, Department of Economics, UC San Diego.
  3. Färnstrand Damsgaard, Erika, 2009. "Patent Scope and Technology Choice," Working Paper Series 792, Research Institute of Industrial Economics.
  4. Chang-Yang Lee, 2003. "Firm Density and Industry R & D Intensity: Theory and Evidence," Review of Industrial Organization, Springer, vol. 22(2), pages 139-158, March.
  5. Jay Pil Choi & Heiko Gerlach, 2011. "Selection Biases in Complementary R&D Projects," CESifo Working Paper Series 3425, CESifo Group Munich.
  6. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science.
  7. Langinier, Corinne & Moschini, GianCarlo, 2002. "Economics of Patents: An Overview, The," Staff General Research Papers 2061, Iowa State University, Department of Economics.
  8. Harhoff, Dietmar, 1991. "R&D incentives and spillovers in a two-industry model," ZEW Discussion Papers 91-06, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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