Working Paper: NBER ID: w1658
Authors: Gene M. Grossman; Carl Shapiro
Abstract: 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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| time (C41) | optimal expenditure rate (H21) |
| level of risk (D81) | choice of project type (C52) |
| prior progress (P30) | future expenditures (H51) |