Is the Market Biased Against Risky R&D?

Tor Klette and David de Meza

RAND Journal of Economics, 1986, vol. 17, issue 1, 133-139

Abstract: This article analyzes the riskiness of the R&D strategies chosen by firms engaged in a "winner-takes-all" patent race. In contradiction to Dasgupta and Stiglitz (1980) we show that, when the distribution of invention times is symmetric, the market equilibrium cannot be safer and may be riskier than is socially optimal. We identify the economic reason for the emergence but only if there are few competitors.

Date: 1986
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