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A Formal Model of Government Sponsored Research (with Applications to Solar Power Systems)

Balbien, Joel and Wilde, Louis L. (1980) A Formal Model of Government Sponsored Research (with Applications to Solar Power Systems). Social Science Working Paper, 339. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper analyzes the behavior of a single firm engaged in R and D for a “sponsor.” We are interested in two particular aspects of the interaction between the two agents: (1) the revelation to the sponsor of new information generated by the firm's research, and (2) the firm's choice of research strategy. We show that contractual forms which provide good incentives in a static environment may introduce incentive problems in a dynamic setting. More specifically, we show that a firm engaged in a sequence of R and D contracts is more likely to do research (1) the lower are the costs of R and D, (2) the better is the state of sponsor knowledge, and (3) the longer is the sequence of contracts (given an appropriately high discount factor). We also show that the firm reveals a larger share of its results (1) the better is the state of sponsor knowledge, (2) the better is the state of private knowledge possessed by the firm, and (3) the shorter is the sequence of contracts. Finally, somewhat surprisingly, we find that the amount of information a firm reveals is independent of the costs of R and D.

Item Type:Report or Paper (Working Paper)
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Alternate Title:A Dynamic Model of Research Contracting
Additional Information:This research was sponsored by the Jet Propulsion Laboratory under Department of Energy funding from the Solar Thermal Parabolic Dish Program. The views expressed reflect those of the authors only. We would like to thank Steve Lippman and Bill Rogerson for helpful comments on an earlier draft. Published as Balbien, Joel, and Louis L. Wilde. "A dynamic model of research contracting." The Bell Journal of Economics (1982): 107-119.
Group:Social Science Working Papers
Funding AgencyGrant Number
Department of Energy (DOE)UNSPECIFIED
Subject Keywords:Unit costs, Contract incentives, Economic models, Risk aversion, Modeling, Technology, Logical proofs, Economic research, Dynamic modeling, Technological innovation
Series Name:Social Science Working Paper
Issue or Number:339
Record Number:CaltechAUTHORS:20171009-153943053
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82235
Deposited By: Jacquelyn Bussone
Deposited On:09 Oct 2017 22:57
Last Modified:03 Oct 2019 18:52

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