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Closed-loop equilibrium in a multi-stage innovation race

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  • Kenneth L. Judd

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

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Cited by:
  1. Bondarev, Anton A., 2011. "Endogenous specialization of heterogeneous innovative activities of firms under technological spillovers," MPRA Paper 35424, University Library of Munich, Germany, revised 15 Dec 2011.
  2. Wagman, Liad & Conitzer, Vincent, 2008. "Choosing Fair Lotteries to Defeat the Competition," MPRA Paper 10375, University Library of Munich, Germany.
  3. David Gill, 2004. "Strategic Disclosure of Intermediate Research Results," Economics Series Working Papers 211, University of Oxford, Department of Economics.
  4. Nisvan Erkal & Deborah Minehart, 2007. "Optimal Sharing Strategies in Dynamic Games of Research and Development," EAG Discussions Papers 200707, Department of Justice, Antitrust Division.
  5. 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.
  6. Nicholas Economides & Matt Mitchell, 2004. "Dynamic Oligopoly with Network Effects," 2004 Meeting Papers 665, Society for Economic Dynamics.
  7. By Kenneth L. Judd & Karl Schmedders & Åževin Yeltekin, 2012. "Optimal Rules For Patent Races," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 23-52, 02.
  8. Grossman, Gene M & Shapiro, Carl, 1987. "Dynamic R&D Competition," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(386), pages 372-87, June.
  9. Kenneth L. Judd, 1997. "Computational Economics and Economic Theory: Substitutes or Complements," NBER Technical Working Papers 0208, National Bureau of Economic Research, Inc.
  10. Gene M. Grossman & Carl Shapiro, 1986. "Optimal Dynamic R&D Programs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 581-593, Winter.
  11. Bondarev, Anton, 2014. "Endogenous specialization of heterogeneous innovative activities of firms under the technological spillovers," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 38(C), pages 235-249.
  12. Meng, Rujing, 2008. "A patent race in a real options setting: Investment strategy, valuation, CAPM beta, and return volatility," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(10), pages 3192-3217, October.

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