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R&D Incentives with Uncertain Probability of Success

Author

Listed:
  • Rittwik Chatterjee
  • Srobonti Chattopadhyay
  • Tarun Kabiraj

Abstract

A firm’s decision to invest in R&D depends on a number of factors such as the availability of funds, extent of R&D spillovers, market structure and success probability. However, the probability of success depends, to a large extent, on factors endogenous to a firm. This means that the success probability can be known to the firm undertaking R&D investment, but not to the rivals; hence, there is incomplete information about probability of success in R&D. There are also uncertainties about the rivals’ R&D decision and R&D status. In a duopoly, we show that there is a non-monotone relation between R&D incentives and the level of information. JEL Classifications: D43, D82, LI3, O3I

Suggested Citation

  • Rittwik Chatterjee & Srobonti Chattopadhyay & Tarun Kabiraj, 2025. "R&D Incentives with Uncertain Probability of Success," Studies in Microeconomics, , vol. 13(1), pages 127-143, April.
    • Handle: RePEc:sae:miceco:v:13:y:2025:i:1:p:127-143
    DOI: 10.1177/23210222231178578
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    More about this item

    Keywords

    R&D incentives; duopoly; incomplete information; type distribution;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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