Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77481
Authors: 
Letina, Igor
Year of Publication: 
2013
Series/Report no.: 
Working Paper Series, Department of Economics, University of Zurich 127
Abstract: 
When firms decide to invest in R&D, they have to choose not only the amount of resources to invest, but also which research projects to develop. This paper investigates the market portfolio of research projects. Contrary to most of the literature, which focuses only on the level of investment in innovation, this model captures both the variety of research projects undertaken and the amount of duplication of research. A characterization of the equilibrium market portfolio is provided. It is shown that an increase in the number of firms increases the variety of developed projects and increases the amount of duplication of research. An increase in the intensity of competition among firms leads to an increase in the variety of developed projects and a decrease in the amount of duplication of research. A characterization of the socially optimal portfolio is provided. It is shown under which conditions the market invests suboptimally in the variety and duplication of research projects. Market underinvestment in the variety of R&D projects is demonstrated for a large class of product market models.
Subjects: 
innovation
competition
R&D portfolio
market structure
JEL: 
L13
L22
O31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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