Competitive Experimentation with Private Information

45 Pages Posted: 24 Nov 2004

See all articles by Giuseppe Moscarini

Giuseppe Moscarini

Yale University - Department of Economics; Cowles Foundation for Research in Economics

Francesco Squintani

University College London

Date Written: October 2004

Abstract

We study a winner-take-all R&D race where firms are privately informed about the uncertain arrival rate of the invention. Due to the interdependent-value nature of the problem, the equilibrium displays a strong herding effect that distinguishes our framework from war-of-attrition models. Nonetheless, equilibrium expenditure in R&D is sub-optimal when the planner is sufficiently impatient. Pessimistic firms prematurely exit the race, so that the expected discounted amount of R&D activity is inefficiently low. This result stands in contrast to the overinvestment in research that is typical of winner-take-all R&D races without private information. We conclude that secrecy in R&D inefficiently slows down the pace of innovation.

Keywords: R&D, experimentation, innovation, private information, herding

JEL Classification: D24, D43, D44, D82, D83

Suggested Citation

Moscarini, Giuseppe and Moscarini, Giuseppe and Squintani, Francesco, Competitive Experimentation with Private Information (October 2004). Available at SSRN: https://ssrn.com/abstract=624623

Giuseppe Moscarini (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3596 (Phone)

HOME PAGE: http://www.econ.yale.edu/~mosca/mosca.html

Cowles Foundation for Research in Economics ( email )

Box 208281
New Haven, CT 06520-8281
United States

HOME PAGE: http://economics.yale.edu/people/giuseppe-moscarini

Francesco Squintani

University College London ( email )

Gower Street
London
United Kingdom

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