This paper examines irreversible investment in a project with uncertain returns, when there is an advantage to being the first to invest, and externalities to investing when others also do so. Pre-emption decreases and may even eliminate the option values created by irreversibility and uncertainty. Externalities introduce inefficiencies in investment decisions. Pre-emption and externalities com...

We develop a multi-sector general equilibrium model in which productivity growth is driven by the production of sector-specific knowledge. In the model, we find that long run differences in total factor productivity growth across sectors are independent of the parameters of the knowledge production function except for one, which we term the fertility of knowledge. Differences in R&D intensity a...

This paper presents an experimental study of dynamic indefinite horizon R&D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine whether technological competition is sustained, or converges into a market structure with an entrenched leadership and lower aggregate R&D. The subjects’ strategies are far less sensitive. In m...

I describe the entry process in a spatial market over an in...nite time horizon. I show that, as long as the strategy space at the location stage is unbounded, the results derived from the single-period Stackelberg model of entry coincide with those obtained in the in...nite horizon model. On the contrary, if the strategy space is bounded, then the later the follower enters, the closer to the c...

We construct a model where the equilibrium organization of firms changes as an economy approaches the world technology frontier. In vertically integrated firms, owners (managers) have to spend time both on production and innovation activities, and this creates managerial overload, and discourages innovation. Outsourcing of some production activities mitigates the managerial overload, but create...

In science-based industries, world-class scientists drive the most successful firms. These scientists are more likely to follow high-stakes, high-returns R&D strategies instead of more predictable incremental strategies. We develop an options pricing model in which the probability of stock-price jumps increases with knowledge capital. GMM estimates show the probability of stock-price jumps incr...

We show that when the researcher’s (observable but not contractible) contribution to innovation is crucial, a covenant not to compete (CNC) reduces effort and profits under both spot and relational contracts. Having no CNC allows the researcher to leave for a rival. This alleviates a commitment problem by forcing the firm to reward a successful researcher. However, if the firm’s R&D investment ...

In this paper we present and analyze a stylized model of endogenous growth with international technology spillover effects from the North to the South. The model allows for endogenous structural change and environmental degradation that reduces world output. We find that within this framework the costless technological spillovers foster structural change in both more and less advanced economies...

In this paper, we study the strategic R&D collaboration by introducing a virtual player to reveal cooperative incentives and keeping investment share and market share independent of each other. We show that high R&D input share must be reflected by high market share, and R&D investment increases with the success probability. Not consistently with the prevailing viewpoint, we also find firms’ R&...

This paper proposes a political theory of social innovation. The paper begins by introducing and reviewing recent claims made for the ways in which social innovation can co-create public goods and services by utilizing forms of collection intelligence (CI) and CI Internet-based platforms. The paper provides a discussion and classification of the literature on collective intelligence before inve...