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Cost-Reducing and Demand-Creating R&D with Spillovers

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  • Richard C. Levin
  • Peter C. Reiss
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    Abstract

    This article analyzes R&D policies when the returns to cost-reducing and demand-creating R&D are imperfectly appropriable and market structure is endogenous. We generalize previous characterizations of appropriability to permit the possibility that own and rival R&D are imperfect substitutes. We also describe how equilibrium expenditures on process and product R&D, as well as equilibrium market structure, depend on technological opportunities and spillovers. In contrast to previous work, diminished appropriability does not necessarily reduce R&D expenditures. For example, under some conditions, an increase in the extent of process (product) spillovers will lead to an increase in product (process) R&D. We estimate several variants of the model by using manufacturing line-of-business data and data from a survey of R&D executives.

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    Bibliographic Info

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

    Volume (Year): 19 (1988)
    Issue (Month): 4 (Winter)
    Pages: 538-556

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    Handle: RePEc:rje:randje:v:19:y:1988:i:winter:p:538-556

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    Cited by:
    1. Xiaoji Lin, 2009. "Endogenous Technological Progress and the Cross Section of Stock Returns," FMG Discussion Papers dp634, Financial Markets Group.
    2. José M. Labeaga & Ester Martínez Ros, . "Persistence and ability in the innovation decisions," Working Papers 2005-16, FEDEA.
    3. Bronwyn H. Hall & Jacques Mairesse & Pierre Mohnen, 2010. "Measuring the Returns to R&D," CIRANO Working Papers 2010s-02, CIRANO.
    4. Pere Arqué-Castells & Pierre Mohnen, 2012. "Sunk costs, extensive R&D subsidies and permanent inducement effects," Working Papers XREAP2012-10, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2012.
    5. Smolny, Werner, 1997. "Endogenous innovations in a model of the firm: Theory and empirical application for West-German manufacturing firms," Discussion Papers 39, University of Konstanz, Center for International Labor Economics (CILE).
    6. Lee G. Branstetter & Mariko Sakakibara, 2000. "When Do Research Consortia Work Well and Why? Evidence from Japanese Panel Data," NBER Working Papers 7972, National Bureau of Economic Research, Inc.
    7. Timo Hiller & Timo Hiller, 2013. "Peer Effects in Endogenous Networks," STICERD - Theoretical Economics Paper Series /2013/564, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    8. Kretschmer, Tobias & Miravete, Eugenio J & Pernías, Jose C, 2011. "Competitive Pressure and the Adoption of Complementary Innovations," CEPR Discussion Papers 8289, C.E.P.R. Discussion Papers.
    9. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
    10. Wang, Yimin & Xiao, Yixuan & Yang, Nan, 2014. "Improving reliability of a shared supplier with competition and spillovers," European Journal of Operational Research, Elsevier, vol. 236(2), pages 499-510.
    11. Rammer, Christian & Costard, Jano & Seliger, Florian & Schubert, Torben, 2008. "Bestimmungsgründe des Innovationserfolgs von baden-württembergischen KMU," ZEW Dokumentationen 08-05, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    12. Sebastian Benz & Mario Larch & Markus Zimmer, 2014. "The Structure of the German Economy," Ifo Working Paper Series Ifo Working Paper No. 180, Ifo Institute for Economic Research at the University of Munich.

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