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Is the Market Biased Against Risky R&D?

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Author Info

  • Tor Klette
  • David de Meza

Abstract

This article analyzes the riskiness of the R&D strategies chosen by firms engaged in a "winner-takes-all" patent race. In contradiction to Dasgupta and Stiglitz (1980) we show that, when the distribution of invention times is symmetric, the market equilibrium cannot be safer and may be riskier than is socially optimal. We identify the economic reason for the emergence but only if there are few competitors.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198621%2917%3A1%3C133%3AITMBAR%3E2.0.CO%3B2-Z&origin=repec
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Bibliographic Info

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

Volume (Year): 17 (1986)
Issue (Month): 1 (Spring)
Pages: 133-139

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Handle: RePEc:rje:randje:v:17:y:1986:i:spring:p:133-139

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Cited by:
  1. Liad Wagman & Vincent Conitzer, 2012. "Choosing fair lotteries to defeat the competition," International Journal of Game Theory, Springer, vol. 41(1), pages 91-129, February.
  2. Letina, Igor, 2013. "The road not taken: competition and the R&D portfolio," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79871, Verein für Socialpolitik / German Economic Association.

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