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Spillovers and R&D Incentive under Incomplete Information

Chatterjee, Rittwik and Chattopadhyay, Srobonti and Kabiraj, Tarun (2018): Spillovers and R&D Incentive under Incomplete Information.

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Abstract

Spillovers of R&D outcome affect the R&D decision of a firm. The present paper discusses the R&D incentives of a firm when the extent of R&D spillover is private information to each firm. We construct a two stage game involving two firms when the firms first decide simultaneously whether to invest in R&D or not, then they compete in quantity. Assuming general distribution function of firm types we compare R&D incentives of firms under alternative scenarios based on different informational structures. The paper shows that while R&D spillovers reduce R&D incentives under complete information unambiguously, however, it can be larger under incomplete information.

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