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Appropriability and Market Structure in a Stochastic Invention Model

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  • R. Mark Isaac
  • Stanley S. Reynolds

Abstract

This research examines in the laboratory a class of game-theoretic equilibrium models of private research and development (R&D). We formulate a stochastic model of R&D investment whose predictions can be examined by using laboratory experiments. The noncooperative Nash equilibrium of our operational model yields testable predictions about the effects of appropriability and market structure on R&D. The experimental results support the hypothesis that the degree of appropriability is inversely related to R&D spending. The results strongly support the hypothesis that an increase in group size yields greater aggregate R&D. The noncooperative Nash equilibrium is shown to be a good predictor of central tendencies in the experiments.

Suggested Citation

  • R. Mark Isaac & Stanley S. Reynolds, 1988. "Appropriability and Market Structure in a Stochastic Invention Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(4), pages 647-671.
    • Handle: RePEc:oup:qjecon:v:103:y:1988:i:4:p:647-671.
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    File URL: http://hdl.handle.net/10.2307/1886068
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