Optimal Dynamic R&D Programs
We study the optimal pattern of outlays for a single firm pursuing an R&D program over time. In the deterministic case, (a) the amount of progress required to complete the project is known, and (b) the relationship between outlays and progress is known. In this case, it is optimal to increase effort over time as the project nears completion. Relaxing (a), we find in general a simple, positive relationship between the optimal expenditure rate at any point in time and the (expected) value at that time of the research program. We also show that, for a given level ofexpected difficulty, a riskier project is always preferred to a safe project. Relaxing (b), we find again that research outlays increase as further progressis made.
|Date of creation:||Jul 1985|
|Publication status:||published as Grossman, Gene M. and Carl Shapiro. "Optimal Dynamic R&D Programs," Rand Journal of Economics, Vol. 17, No. 4, Winter 1986, pp. 581-593.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Kenneth L. Judd, 2003.
"Closed-loop equilibrium in a multi-stage innovation race,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 673-695, March.
- Kenneth L. Judd, 1985. "Closed-Loop Equilibrium in a Multi-Stage Innovation Race," Discussion Papers 647, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-293, June.
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- Christopher Harris & John Vickers, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 193-209.
- 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.
- Robert E. Lucas, Jr., 1971. "Optimal Management of a Research and Development Project," Management Science, INFORMS, vol. 17(11), pages 679-697, July. Full references (including those not matched with items on IDEAS)
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