R&D investment under time-inconsistent preferences

Fan Hu, Fan Zhang and Zhentao Zou

Economics Letters, 2020, vol. 197, issue C

Abstract: We extend the real options model of R&D by incorporating time-inconsistent preferences. We show that time-inconsistent preferences can lead to both under-investment and over-investment in R&D, which depends on the magnitude of technological uncertainty. When the technological uncertainty is low, the sophisticated entrepreneurs exercise earlier than the time-consistent entrepreneur. However, the sophisticated entrepreneurs invest later when the technological uncertainty is high.

Keywords: R&D investment; Time-inconsistent preferences; Technological uncertainty (search for similar items in EconPapers)
JEL-codes: D91 G30 O32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303803

DOI: 10.1016/j.econlet.2020.109620

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