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Portfolio Choice in Research and Development

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Author Info
Sudipto Bhattacharya
Dilip Mookherjee

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Abstract

We analyze the effects of a "winner-take-all" patent mechanism on the riskiness of the research strategies chosen by competing firms, as well as on the firms' incentives to duplicate research projects. Nash equilibrium choices are compared with the social optimum in a one-shot, simultaneous-move game in which competitors choose the riskiness or correlation of their research performances. We show that neither society nor firms have any preference for correlation per se, while the divergence between social and privately optimal levels of risk depends on skewness characteristics of the probability distribution over the discovery dates and on levels of risk aversion.

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

Volume (Year): 17 (1986)
Issue (Month): 4 (Winter)
Pages: 594-605
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Handle: RePEc:rje:randje:v:17:y:1986:i:winter:p:594-605

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  1. Bulut, Harun & Moschini, GianCarlo, 2005. "Parallel Research, Multiple Intellectual Property Right Protection Instruments, and the Correlation among R&D Projects," Staff General Research Papers 12415, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  2. L. Lambertini & R. Orsini, 2000. "Process and Product Innovation in a Vertically Differentiated Monoply," Working Papers 367, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
    Other versions:
  3. Heiko Gerlach & Thomas Rønde & Konrad O. Stahl, 2005. "Labor Pooling in R&D Intensive Industries," Discussion Papers 64, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  4. Kyle Bagwell & Robert W. Staiger, 1990. "The Sensitivity of Strategic and Corrective R&D Policy in Battles for Monopoly," NBER Working Papers 3235, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Jonathan B. Berk & Richard C. Green & Vasant Naik, 1998. "Valuation and Return Dynamics of New Ventures," NBER Working Papers 6745, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Heiko A. Gerlach & Thomas Rønde & Konrad Stahl, 2004. "Project Choice and Risk in R&D," CIE Discussion Papers 2004-01, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  7. Gerlach, Heiko A. & Rønde, Thomas & Stahl, Konrad O., 2002. "Market and Technical Risk in R&D," CEPR Discussion Papers 3450, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. L. Lambertini & A. Mantovani, 2005. "Process and Product Innovation by a Multiproduct Monopolist: A Dynamic Approach," Working Papers 551, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  9. L. Lambertini, 2000. "The Monopolist's Optimal R&D Portfolio," Working Papers 391, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
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  10. 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. [Downloadable!]
  11. Chang-Ho Yoon, 1999. "Entrepreneurial Development In Late Industrialization: A Comparrative Analysis," International Economic Journal, Korean International Economic Association, vol. 13(2), pages 1-20, June. [Downloadable!] (restricted)
  12. Giovanni B. Ramello, 2004. "Pelle sub agnina latitat mens saepe lupina. Copyright in the marketplace," LIUC Papers in Economics 141, Cattaneo University (LIUC). [Downloadable!]
  13. Wagman, Liad & Conitzer, Vincent, 2008. "Choosing Fair Lotteries to Defeat the Competition," MPRA Paper 10375, University Library of Munich, Germany. [Downloadable!]
  14. Boyan Jovanovic & Yaw Nyarko, 1995. "Research and Productivity," NBER Working Papers 5321, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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