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Rivalry and the Excessive Allocation of Resources to Research

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  • Pankaj Tandon

Abstract

This article presents a simple probability model of R&D which suggests that competitive firms may overinvest resources in research, even in the face of uncertainty, inappropriability and increasing costs of research. In the presence of uncertainty, some duplication of R&D efforts may be justified because of the increased probability of success that results, but competitive equilibria may be characterized by excessive duplication. Further, when different firms can discover different things, excessive knowledge may be produced, even when each firm individually performs less R&D than is socially desirable. This is a consequence of excessive entry.

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  • Pankaj Tandon, 1983. "Rivalry and the Excessive Allocation of Resources to Research," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 152-165, Spring.
    • Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:152-165
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    Cited by:

    1. Carl Shapiro, 2008. "Patent Reform: Aligning Reward and Contribution," NBER Chapters, in: Innovation Policy and the Economy, Volume 8, pages 111-156, National Bureau of Economic Research, Inc.
    2. Färnstrand Damsgaard, Erika, 2009. "Patent Scope and Technology Choice," Working Paper Series 792, Research Institute of Industrial Economics.
    3. Wipusanawan, Chayanin, 2020. "Standard-Essential Patents and Incentives for Innovation," Discussion Paper 2020-025, Tilburg University, Tilburg Law and Economic Center.
    4. Tetsugen Haruyama, 2018. "The Cleansing Effect Of R&D Subsidies," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 452-458, October.
    5. Jay Pil Choi & Heiko Gerlach, 2014. "Selection Biases in Complementary R&D Projects," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 899-924, December.
    6. Erzo G. J. Luttmer, 2021. "Dynamic Urn-Ball Discovery," Working Papers 789, Federal Reserve Bank of Minneapolis.
    7. Wipusanawan, Chayanin, 2020. "Standard-Essential Patents and Incentives for Innovation," Other publications TiSEM 5bbcc50b-2497-43a4-bba6-f, Tilburg University, School of Economics and Management.
    8. Langinier, Corinne & Moschini, GianCarlo, 2002. "Economics of Patents: An Overview, The," Staff General Research Papers Archive 2061, Iowa State University, Department of Economics.
    9. James Bessen & Eric Maskin, 2009. "Sequential innovation, patents, and imitation," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 611-635, December.
    10. Wipusanawan, Chayanin, 2020. "Standard-Essential Patents and Incentives for Innovation," Other publications TiSEM 9ea6a894-ac05-413d-8c2d-0, Tilburg University, School of Economics and Management.
    11. Fissel, Benjamin E & Glibert, Ben, 2010. "Exogenous Productivity Shocks and Capital Investment in Common-pool Resources," University of California at San Diego, Economics Working Paper Series qt1qp1g9ts, Department of Economics, UC San Diego.
    12. Wipusanawan, Chayanin, 2020. "Standard-Essential Patents and Incentives for Innovation," Discussion Paper 2020-034, Tilburg University, Center for Economic Research.
    13. Kangoh Lee, 2020. "The value and direction of innovation," Journal of Economics, Springer, vol. 130(2), pages 133-156, July.
    14. Wipusanawan, Chayanin, 2023. "Standard-essential patents, innovation, and competition," Other publications TiSEM 292e319a-9e6a-4465-8f8f-7, Tilburg University, School of Economics and Management.
    15. Samuli Leppälä, 2016. "Antitrust exemptions for joint R&D improve patents," Public Choice, Springer, vol. 166(1), pages 29-52, January.
    16. Harhoff, Dietmar, 1991. "R&D incentives and spillovers in a two-industry model," ZEW Discussion Papers 91-06, ZEW - Leibniz Centre for European Economic Research.
    17. Chang-Yang Lee, 2003. "Firm Density and Industry R & D Intensity: Theory and Evidence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(2), pages 139-158, March.

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