Abstract

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Optimal Dynamic R&D Programs


Gene M. Grossman


Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Carl Shapiro


University of California, Berkeley - Haas School of Business

July 1985

NBER Working Paper No. w1658

Abstract:     
We study the optimal pattern of outlays for a single firm pursuing an R&D program over time. In the deterministic case, (a) the amount of progress required to complete the project is known, and (b) the relationship between outlays and progress is known. In this case, it is optimal to increase effort over time as the project nears completion. Relaxing (a), we find in general a simple, positive relationship between the optimal expenditure rate at any point in time and the (expected) value at that time of the research program. We also show that, for a given level ofexpected difficulty, a riskier project is always preferred to a safe project. Relaxing (b), we find again that research outlays increase as further progressis made.

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Date posted: June 19, 2004  

Suggested Citation

Grossman, Gene M. and Shapiro, Carl, Optimal Dynamic R&D Programs (July 1985). NBER Working Paper No. w1658. Available at SSRN: http://ssrn.com/abstract=338750

Contact Information

Gene M. Grossman (Contact Author)
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
300 Fisher Hall
Prospect Avenue
Princeton, NJ 08544-1021
United States
609-258-4823 (Phone)
609-258-1374 (Fax)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States

CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Carl Shapiro
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-5905 (Phone)
HOME PAGE: http://faculty.haas.berkeley.edu
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