The Radical Innovation Investment Decision Refined
We refine modelling of the radical innovation decision in this paper by extending real option theory to include non-marginal stochastic jump processes. From the model analytics we determine that the average magnitude and frequency of non-marginal stochastic jump processes are the most important parameters in this highly uncertain decision process. We show that these stochastic shocks imply that investment in radical innovation may very often be too time consuming and/or expensive to remain attractive for private entrepreneurs.
|Date of creation:||Apr 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean O. Lanjouw & Mark Schankerman, 2004. "Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators," Economic Journal, Royal Economic Society, vol. 114(495), pages 441-465, 04.
- Lipsey, Richard G. & Carlaw, Kenneth I. & Bekar, Clifford T., 2005. "Economic Transformations: General Purpose Technologies and Long-Term Economic Growth," OUP Catalogue, Oxford University Press, number 9780199290895.
- Freeman, Chris, 1994. "The Economics of Technical Change," Cambridge Journal of Economics, Oxford University Press, vol. 18(5), pages 463-514, October.
- Jan Fagerberg & Bart Verspagen, 2007.
"Innovation, growth and economic development: have the conditions for catch-up changed?,"
International Journal of Technological Learning, Innovation and Development,
Inderscience Enterprises Ltd, vol. 1(1), pages 13-33.
- Jan Fagerberg & Bart Verspagen, 2007. "Innovation, growth and economic development: have the conditions for catch-up changed?," Working Papers Archives 2007001, Centre for Technology, Innovation and Culture, University of Oslo.
- Freeman, Christopher & Soete, Luc, 2009.
"Developing science, technology and innovation indicators: What we can learn from the past,"
Elsevier, vol. 38(4), pages 583-589, May.
- Soete, Luc & Freeman, Chris, 2007. "Developing science, technology and innovation indicators: what we can learn from the past," MERIT Working Papers 001, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- Sharon Belenzon, 2012. "Cumulative Innovation and Market Value: Evidence from Patent Citations," Economic Journal, Royal Economic Society, vol. 122(559), pages 265-285, 03.
- Yang, Hailiang & Zhang, Lihong, 2005. "Optimal investment for insurer with jump-diffusion risk process," Insurance: Mathematics and Economics, Elsevier, vol. 37(3), pages 615-634, December.
- Tommy Clausen & Mikko Pohjola & Koson Sapprasert & Bart Verspagen, 2012.
"Innovation strategies as a source of persistent innovation,"
Industrial and Corporate Change,
Oxford University Press, vol. 21(3), pages 553-585, June.
- Tommy Clausen & Mikko Pohjola & Koson Sapprasert & Bart Verspagen, 2010. "Innovation strategies as a source of persistent innovation," Working Papers on Innovation Studies 20100617, Centre for Technology, Innovation and Culture, University of Oslo.
- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Merton, Robert C., 1975.
"Option pricing when underlying stock returns are discontinuous,"
787-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
- Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
- Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
- Doraszelski, Ulrich, 2001. "The net present value method versus the option value of waiting: A note on Farzin, Huisman and Kort (1998)," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1109-1115, August.
- Vania Sena, 2004. "The Return of the Prince of Denmark: A Survey on Recent Developments in the Economics of Innovation," Economic Journal, Royal Economic Society, vol. 114(496), pages F312-F332, 06.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp7338. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.