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An Analytical And Empirical Analysis Of The Private Biotech R&D Incentives

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  • Malla, Stavroula
  • Gray, Richard S.

Abstract

The study examines the incentives and incidence of private R&D investment in the today's biotech industry. A three-stage search/imperfect competition model is developed to derive the optimal pricing and investment decisions of private firms and to develop conjectures about how these decisions are affected by exogenous factors. The analysis shows that basic public research "crowds in" applied private research while applied public research "crowds out" applied private research. The current technology level and the cost of the experimentation negatively affect private investment, while the price of the final product positively affects the private investment. Moreover, the greater the product heterogeneity, the higher the price charged with the same amount of R&D. Finally, the increase in IPR's and the firm's market size has a positive effect on the private firm's amount of R&D investment. These conjectures are tested empirically using data from the Canola research industry. The results of the empirical analysis strongly support the results derived from the theoretical model.

Suggested Citation

  • Malla, Stavroula & Gray, Richard S., 2001. "An Analytical And Empirical Analysis Of The Private Biotech R&D Incentives," 2001 Annual meeting, August 5-8, Chicago, IL 20544, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea01:20544
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    File URL: http://purl.umn.edu/20544
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