Project Choice and Risk in R&D
AbstractWe introduce stochastic R&D in the Hotelling model and show that if the technical risk is sufficiently high, all firms focus on the most valuable market segment. We then endogenize technical risk by allowing firms to choose between a safe and a risky R&D technology. In equilibrium, firms either both target the most attractive market with at least one firm using the risky technology or they choose different niche projects and both apply the safe R&D technology. We show that R&D spillovers lead to more differentiated R&D projects and patent protection to less. Project coordination within a RJV implies more differentiation, and may be welfare-improving.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2004-01.
Length: 32 pages
Date of creation: Jan 2004
Date of revision:
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technical risk; R&D project choice; technological spillovers; research joint ventures;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-01-25 (All new papers)
- NEP-INO-2004-01-25 (Innovation)
- NEP-MIC-2004-01-25 (Microeconomics)
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