Closed-loop equilibrium in a multi-stage innovation race

Kenneth Judd

Economic Theory, 2003, vol. 21, issue 2, 673-695

Abstract: We examine a multistage model of an R&D race where players have multiple projects. We also develop perturbation methods for general dynamic games that can be expressed as analytic operators in a Banach space. We apply these perturbation methods to solve races with a small prize. We compute second-order asymptotically valid solutions for equilibrium and socially optimal decisions to determine qualitative properties of equilibrium. We find that innovators invest relatively too much on risky projects. Strategic reactions are ambiguous in general; in particular, a player may increase expenditures as his opponent moves ahead of him. Copyright Springer-Verlag Berlin Heidelberg 2003

Keywords: Keywords and Phrases: Multistage races; Perturbation methods; Dynamic games.; JEL Classification Numbers: C630; 0310. (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (20)

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Working Paper: Closed-Loop Equilibrium in a Multi-Stage Innovation Race (1985)
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Persistent link: https://EconPapers.repec.org/RePEc:spr:joecth:v:21:y:2003:i:2:p:673-695

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DOI: 10.1007/s00199-002-0310-y

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