We analyze an R&D race in which, in each period, two firms each choose which of two research projects to invest in. Each observes the other's past choices and so strategic search is possible. Equilibrium is efficient if the projects differ only in their probability of being the "right'' project. If they differ in other dimensions (e.g., cost), then there may be too much or too little duplication relative to the social optimum.
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Volume (Year): 35 (2004) Issue (Month): 1 (Spring) Pages: 160-183 Download reference. The following formats are available: HTML
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Nicolas Klein & Sven Rady, 2008.
"Negatively Correlated Bandits,"
Discussion Papers
243, 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.
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