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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. Andreas Fier & Dietmar Harhoff, 2002. "Die Evolution der bundesdeutschen Forschungs- und Technologiepolitik: Rückblick und Bestandsaufnahme," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 3(3), pages 279-301, 08.
  2. Kyle Bagwell & Robert W. Staiger, 1990. "Risky R&D in Oligopolistic Product Markets," Discussion Papers 872, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Kyle Bagwell & Robert W. Staiger, 1989. "The Sensitivity of Strategic and Corrective R&D Policy in Battles for Monopoly," Discussion Papers 868, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. 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.
  5. Andreas Panagopoulos, 2004. "When Does Patent Protection Stimulate Innovation?," Bristol Economics Discussion Papers 04/565, Department of Economics, University of Bristol, UK.
  6. Squicciarini, Mariagrazia & Loikkanen, Torsti, 2008. "Going Global: The Challenges for Knowledge-based Economies," MPRA Paper 9663, University Library of Munich, Germany.

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