Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316505 
Authors: 
Year of Publication: 
2016
Citation: 
[Journal:] East Asian Economic Review (EAER) [ISSN:] 2508-1667 [Volume:] 20 [Issue:] 2 [Year:] 2016 [Pages:] 191-228
Publisher: 
Korea Institute for International Economic Policy (KIEP), Sejong-si
Abstract: 
This paper analyzes the role of absorptive capacity in R&D spillovers through strategic R&D investments in a game-theoretic framework. In the model, a firm's effective R&D is composed of idiosyncratic R&D, which produces its own innovations, and identical R&D, which improves absorptive capacity. The model shows that in the presence of absorptive capacity firms have a tendency to underinvest (overinvest) in idiosyncratic (identical) R&D relative to the social optimum. As the spillover becomes larger, firms decrease their own R&D while they become more inclined towards strategic exploitation of rivals' efforts. Since the former effect overpowers the latter, the total amount of R&D decreases as the spillover increases. This is socially undesirable, providing a potential justification for a governmental subsidy for idiosyncratic R&D and a tax on identical R&D. The findings may have important implications for newly industrialized or emerging countries that consider a redirection of national R&D policy and intellectual property rights (IPR) regime.
Subjects: 
Absorptive Capacity
R&D
Spillovers
JEL: 
L13
O31
O32
O38
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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