The Market for R&D Failures

57 Pages Posted: 4 Feb 2010

See all articles by Manuel Trajtenberg

Manuel Trajtenberg

Tel Aviv University - Eitan Berglas School of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Roy Shalem

Tel Aviv University - Eitan Berglas School of Economics

Date Written: September 30, 2009

Abstract

The informational structure of R&D is characterized by the fact that firms are exposed to more information related to R&D successes of their competitors than to one that reveals their failures. This paper theoretically explores the feasibility of trading knowledge of R&D failures. The implications of constructing a market for R&D failures are substantive, in that they may decrease the effective cost of R&D, shorten the average time to discovery and increase the number of active R&D projects. We present the conditions required for a mutually beneficial trading of R&D failures information between competitors, as well as design trading mechanisms and policy implications that would account for obstacles such as moral hazard, verification, over-investment and private gains.

Keywords: R&D, Patent Races, Cooperation, Licensing, Contract Theory

JEL Classification: D23, L42, O3

Suggested Citation

Trajtenberg, Manuel and Shalem, Roy, The Market for R&D Failures (September 30, 2009). Available at SSRN: https://ssrn.com/abstract=1547268 or http://dx.doi.org/10.2139/ssrn.1547268

Manuel Trajtenberg

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3640 9911 (Phone)
+972 3640 9908 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Roy Shalem (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

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