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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. 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.
  2. Jay Pil Choi & Heiko Gerlach, 2011. "Selection Biases in Complementary R&D Projects," CESifo Working Paper Series 3425, CESifo Group Munich.
  3. Carl Shapiro, 2007. "Patent Reform: Aligning Reward and Contribution," NBER Working Papers 13141, National Bureau of Economic Research, Inc.
  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.

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