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Dynamic R&D Competition under "Hazard Rate" Uncertainty

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Author Info
Jay P. Choi

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Abstract

A model of dynamic R&D behavior is presented in which participants in the race have imperfect information about the (true) "hazard rate" of the R&D process. In this model, a firm will be ambivalent about a rival firm's success at an intermediate stage. On the one hand, the probability of winning is reduced, since a rival firm is ahead and the technological gap is larger. This effect is always negative. On the other hand, the discovery could be a signal that the project is not as hard after all ("If you can do that, why not me?"), which could shorten the expected time needed for the discovery. This is a positive effect of a rival firm's success, one that is not present in existing models and hence has been ignored up to now. According to the relative magnitude of these two opposing effects, a much richer description of real-world R&D behavior is obtained. This article also provides a potential explanation of the strategic practice of innovation shelving.

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

Volume (Year): 22 (1991)
Issue (Month): 4 (Winter)
Pages: 596-610
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Handle: RePEc:rje:randje:v:22:y:1991:i:winter:p:596-610

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  1. C. Halmenschlager, 2004. "Spillovers and Absorptive Capacity in a Patent Race," Working Papers ERMES 0409, ERMES, University Paris 2. [Downloadable!]
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  2. David Gill, 2004. "Strategic Disclosure of Intermediate Research Results," Economics Series Working Papers 211, University of Oxford, Department of Economics. [Downloadable!]
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  3. C. Halmenschlager, 2003. "Les externalités de diffusion du savoir-faire permettent- elles de rattraper le retard dans les courses à l'innovation," Working Papers ERMES 0304, ERMES, University Paris 2. [Downloadable!]
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  4. Daron Acemoglu & Ufuk Akcigit, 2006. "State-Dependent Intellectual Property Rights Policy," NBER Working Papers 12775, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Weeds, H., 2000. "Strategic Delay in a Real Optimna Model of R&D Competition," The Warwick Economics Research Paper Series (TWERPS) 576, University of Warwick, Department of Economics. [Downloadable!]
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  6. Olivier Cadot & Bernard Sinclair-Desgagné, 1995. "Innovation Under the Threat of Stricter Environmental Standards," CIRANO Working Papers 95s-11, CIRANO. [Downloadable!]
  7. Christine HALMENSCHLAGER, 2004. "Les externalitŽs de diffusion du savoir-faire permettent-elles de rattraper le retard dans les courses ˆ lÕinnovation?," Discussion Papers (REL - Recherches Economiques de Louvain) 2004034, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  8. Oscar Gutiérrez, 2005. "The Product Life Cycle and the Real Option of Waiting," Frontiers in Finance and Economics, Lille Graduate School of Management, vol. 2(2), pages 79-105, December. [Downloadable!]
  9. Ekaterina Goldfain & Eugen Kovac, 2005. "Financing of Competing Projects with Venture Capital," Bonn Econ Discussion Papers bgse37_2005, University of Bonn, Germany. [Downloadable!]
  10. Nisvan Erkal & Suzanne Scotchmer, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it," NBER Working Papers 14940, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Nien-Huei Jiang, 2000. "Information Spillover and Economic Development," Working Papers 0030, Department of Economics, Vanderbilt University. [Downloadable!]
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