R&D Incentives with Uncertain Probability of Success

Rittwik Chatterjee, Srobonti Chattopadhyay and Tarun Kabiraj

Studies in Microeconomics, 2025, vol. 13, issue 1, 127-143

Abstract: A firm’s decision to invest in R&D depends on a number of factors such as the availability of funds, extent of R&D spillovers, market structure and success probability. However, the probability of success depends, to a large extent, on factors endogenous to a firm. This means that the success probability can be known to the firm undertaking R&D investment, but not to the rivals; hence, there is incomplete information about probability of success in R&D. There are also uncertainties about the rivals’ R&D decision and R&D status. In a duopoly, we show that there is a non-monotone relation between R&D incentives and the level of information. JEL Classifications: D43, D82, LI3, O3I

Keywords: R&D incentives; duopoly; incomplete information; type distribution (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:miceco:v:13:y:2025:i:1:p:127-143

DOI: 10.1177/23210222231178578

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