The Market for R&D Failures
57 Pages Posted: 4 Feb 2010
Date Written: September 30, 2009
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: Suggested Citation