Firms’ R&D Dilemma: To Undertake Or Not To Undertake R&D
AbstractIt is well known that in most industries a significant proportion of firms do not perform innovative activities. Although empirical studies on the determinants of R&D often have taken this fact into account by considering the dependent variable as a censured one, there is not an explicit theoretical model to explain the zeros. The concern of this letter is to discuss a simple theoretical model where firms simultaneously decide whether to undertake or not R&D activities jointly with the l evel of the R&D investment. We show that a firm performs R&D activities only when its optimal level of R&D expenditure is higher than a threshold. Additionally, we show that both the probability of undertaking R&D activities and the R&D expenditure increase with market power, with the elasticity of demand with respect to quality and with the elasticity of quality with respect to R&D. Finally, from this simple theoretical framework we discuss a suitable econometric model that threats these decisions simultaneously.
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Bibliographic InfoPaper provided by Universidade de Vigo, Departamento de Economía Aplicada in its series Working Papers with number 0208.
Length: 11 pages
Date of creation: Oct 2002
Date of revision:
R&D; thresholds; Tobit model.;
Other versions of this item:
- Xulia Gonzalez & Consuelo Pazo, 2004. "Firms' R&D dilemma: to undertake or not to undertake R&D," Applied Economics Letters, Taylor and Francis Journals, vol. 11(1), pages 55-59.
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
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