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Optimal R&D Investments of the Firm
Kort,P.M.
Kort,P.M.
Abstract
This paper examines irreversible decisions on innovative activities where it takes time to complete an R&D project. The totala mountof R&D investments that the firm needs to undertake in order to obtain the breakthrough in the innovation process is uncertain. R&D investments are limited by the restriction that they must be self-financed. It is shown that R&D investmentsar e morev aluable when the level of uncertainty is large. Especially, it is very attractive to undertake R&D investments if a project faces many uncertainties during its ea rly phases. Furthermore we study how R&D behavior is inuenced by different levels of the discount rate and the financing limit. Moreover, the effects of R&D subsidies, spillover benefirts and a payoff that decreases over time are analyzed.
Description
Pagination: 26
Date
1996
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Publisher
Operations research
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47.pdf
Adobe PDF, 405.73 KB
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Keywords
research and development, investment, uncertainty
Citation
Kort, P M 1996 'Optimal R &D Investments of the Firm' CentER Discussion Paper, vol. 1996-47, Operations research, Tilburg.