Working Paper: NBER ID: w1798
Authors: Raaj Kumar Sah; Joseph E. Stiglitz
Abstract: Thi spaper presents certain remarkably simple results concerning market's allocation to R&D and its comparison to socially efficient allocations. We posit that a firm can undertake more than one project aimed at the same innovation, and consider a product market characterized by Bertrand competition. Among the results we obtain is that the market R&D (that is, the number of projects undertaken, and the effort spent on different projects) is invariant to the number of firms. We also examine the effects of the number of firms on the gains from innovation to consumers, firms, and society, and show, in particular, that the market undertakes less R&D than is socially desirable.
Keywords: innovation; R&D; market structure; Bertrand competition
JEL Codes: O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of firms (L20) | pace of innovation (O35) |
| number of firms (L20) | intensity of R&D projects (O32) |
| number of firms (L20) | number of R&D projects (O32) |
| number of firms (L20) | probability of successful innovation (O36) |
| number of firms (L20) | overall social gains from innovation (O35) |
| market allocation to R&D (O32) | number of firms (L20) |