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Closed-loop equilibrium in a multi-stage innovation race

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Author Info
Kenneth L. Judd

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Abstract

We examine a multistage model of an R&D race where players have multiple projects. We also develop perturbation methods for general dynamic games that can be expressed as analytic operators in a Banach space. We apply these perturbation methods to solve races with a small prize. We compute second-order asymptotically valid solutions for equilibrium and socially optimal decisions to determine qualitative properties of equilibrium. We find that innovators invest relatively too much on risky projects. Strategic reactions are ambiguous in general; in particular, a player may increase expenditures as his opponent moves ahead of him. Copyright Springer-Verlag Berlin Heidelberg 2003

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File URL: http://hdl.handle.net/10.1007/s00199-002-0310-y
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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 21 (2003)
Issue (Month): 2 (03)
Pages: 673-695
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Handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:673-695

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Related research
Keywords: Keywords and Phrases: Multistage races; Perturbation methods; Dynamic games.; JEL Classification Numbers: C630; 0310.;

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  1. Gene M. Grossman & Carl Shapiro, 1988. "Optimal Dynamic R&D Programs," NBER Working Papers 1658, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Kenneth Judd & Karl Schmedders, 2002. "Optimal Rules for Patent Races," Discussion Papers 1343, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  3. David Gill, 2004. "Strategic Disclosure of Intermediate Research Results," Economics Series Working Papers 211, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  4. Fabiano Schivardi & Martin Schneider, 2008. "Strategic Experimentation and Disruptive Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 386-412, April. [Downloadable!] (restricted)
    Other versions:
  5. Nisvan Erkal & Deborah Minehart, 2008. "Optimal Sharing Strategies in Dynamic Games of Research and Development," Department of Economics - Working Papers Series 1038, The University of Melbourne. [Downloadable!]
  6. Gene M. Grossman & Carl Shapiro, 1988. "Dynamic R&D Competition," NBER Working Papers 1674, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Wagman, Liad & Conitzer, Vincent, 2008. "Choosing Fair Lotteries to Defeat the Competition," MPRA Paper 10375, University Library of Munich, Germany. [Downloadable!]
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