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Research and Development with a Generalized Hazard Function

Reinganum, Jennifer F. (1983) Research and Development with a Generalized Hazard Function. Social Science Working Paper, 455. California Institute of Technology , Pasadena, CA. (Unpublished)

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Previous work in this area has analyzed research and development as a stochastic racing game where the strategy is the rate of investment on the innovation, conditional on no success to date. This paper generalizes this work in several ways; first, we use a more general hazard function, although we retain the assumption that it depends only upon current investment. We find that when patent protection is perfect, equilibrium investment rates are monotonically increasing over time. Second, we allow for the possibility that some firms are currently receiving profits from the sale of a product which will be replaced by the innovation. This allows us to determine whether current industry leaders will tend to be more or less innovative than firms with smaller current market shares. We find that, in a stationary equilibrium, current industry leaders will tend to invest at a lower rate than those firms which currently have smaller market shares. We also remark that a stationary equilibrium implies that the random success date follows an exponential distribution, an assumption which is ubiquitous in the earlier theoretical work on this subject.

Item Type:Report or Paper (Working Paper)
Additional Information:Revised. Original dated to October 1982.
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:455
Record Number:CaltechAUTHORS:20170926-150916307
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81853
Deposited By: Jacquelyn Bussone
Deposited On:26 Sep 2017 23:08
Last Modified:03 Oct 2019 18:47

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