Optimal Sharing Strategies in Dynamic Games of Research and Development
Nisvan Erkal and Deborah Minehart, EAG 08-06, June 2008
PDF Accessible Text
Abstract:
This paper builds a theoretical foundation for the dynamics of knowledge
sharing in private
industry. In practice, research and development projects can take years
or even decades to
complete. We model an uncertain research process, where research projects
consist of multiple
sequential steps. We ask how the incentives to license intermediate
steps to rivals change
over time as the research project approaches maturity and the uncertainty
that the firms
face decreases. Such a dynamic approach allows us to analyze the interaction
between how
close the firms are to product market competition and how intense that
competition is. If
product market competition is relatively moderate, the lagging firm
is expected never to drop
out and the incentives to share intermediate research outcomes decreases
monotonically with
progress. However, if product market competition is relatively intense,
the incentives to share
may increase with progress. These results illustrate under what circumstances
it is necessary
to have policies aimed at encouraging cooperation in R&D and when
such policies should be
directed towards early vs. later stage research.