Working Paper No. 211

Firms' Choice of R&D Intensity in the Presence of Aggregate Increasing Returns to Scale


When firms possess unique R & D assets such as ideas or particular researchers, and there are aggregate increasing returns to scale in R & D, then there can be several Nash equilibria involving different levels of investment in R & D. However when costless communication is possible firms may be able to coordinate a move towards a pareto-preferred equilibrium provided that the communication is credible. It is shown that in some cases when firms do not move to a pareto-preferred equilibrium in spite of communication one firm may have an incentive to purchase R & D assets from other firms to reap the gain from moving to a high R & D-intensity equilibrium.
In the absence of common knowledge however it is not clear whether players will choose strategies that lead to Nash equilibria. Two hypotheses in this case are that communication is much less useful and that the concentration of R & D assets influences players entry decision. These hypotheses are confirmed in a laboratory experiment.
 

Elgar Companion to

Social Capital and Health

Martin Ljunge okt 2018.jpg

Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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