35 Pages Posted: 19 Jun 2004
Date Written: July 1985
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.
Suggested Citation: Suggested Citation
Grossman, Gene M. and Shapiro, Carl, Optimal Dynamic R&D Programs (July 1985). NBER Working Paper No. w1658. Available at SSRN: https://ssrn.com/abstract=338750
By Ben Bernanke