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Strategic R and D investments with uncertainty

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  • Toshihiro Matsumura

    (Institute of Social Science, University of Tokyo)

Abstract

I introduce uncertainty into the model of strategic cost-reducing R and D investments and reexamine welfare implications. I discuss two models. In one model an increase in expenditure decreases production costs when R\&D succeeds, and in the other model it increases probability of success. I show that two models yield completely different implications for tax-subsidy policies on R and D investments. In the former model equilibrium investment level is always too low from the viewpoint of social welfare, while in the latter model it can be either too low or too high and relatively risky (safe) investments should be subsidized (taxed).

Suggested Citation

  • Toshihiro Matsumura, 2003. "Strategic R and D investments with uncertainty," Economics Bulletin, AccessEcon, vol. 12(1), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-03l10004
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    References listed on IDEAS

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    Cited by:

    1. Xing, Mingqing & Tan, Tingting & Wang, Xia, 2021. "Emission taxes and environmental R&D risk choices in a duopoly market," Economic Modelling, Elsevier, vol. 101(C).

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    More about this item

    Keywords

    production substitution;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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