Strategic Exploration for Innovation

Shangen Li

Papers from arXiv.org

Abstract: This paper introduces a framework to study innovation in a strategic setting, in which innovators allocate their resources between exploration and exploitation in continuous time. Exploration creates public knowledge, while exploitation delivers private benefits. Through the analysis of a class of Markov equilibria, we demonstrate that knowledge spillovers accelerate knowledge creation and expedite its availability, thereby encouraging innovators to increase exploration. The prospect of the ensuing superior long-term innovations further motivates exploration, giving rise to a positive feedback loop. This novel feedback loop can substantially mitigate the free-riding problem arising from knowledge spillovers.

Date: 2021-08, Revised 2023-12
New Economics Papers: this item is included in nep-gth, nep-isf and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2108.07218

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