Bias in Market R&D Portfolios
Based on a simple "contest" model of product innovation, we provide a necessary and sufficient condition for the market to be biased against risky R&D projects. We find that, in accordance with conventional wisdom and contrary to much of the previous theoretical literature, market comp...
| Main Author: | |
|---|---|
| Format: | workingPaper |
| Language: | eng |
| Published: |
2019
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/10362/85864 |
| Country: | Portugal |
| Oai: | oai:run.unl.pt:10362/85864 |
| Summary: | Based on a simple "contest" model of product innovation, we provide a necessary and sufficient condition for the market to be biased against risky R&D projects. We find that, in accordance with conventional wisdom and contrary to much of the previous theoretical literature, market competition implies an equilibrium level of risk which is too low from society's standpoint. The intuition for the result in terms of the "business stealing" effect is provided. |
|---|