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When Spillovers Enhance R&D Incentives

Chatterjee, Rittwik and Chattopadhyay, Srobonti and Kabiraj, Tarun (2018): When Spillovers Enhance R&D Incentives.

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It is commonly believed that spillover reduces R&D incentives of a firm. This happens because of the non-appropriability problem. However, some empirical literature shows the possibility of enhanced R&D incentives under spillovers. While this is explained in the literature under incomplete information, we show that this may hold even under complete information. We show in particular that in a duopoly there are situations when with no spillovers only one firm invests in R&D, but under spillovers both the firms invest. This occurs when there is complementarity in research and the spillover is below a critical level.

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