Competitive Experimentation with Private Information

Giuseppe Moscarini and Francesco Squintani ()

No 1489, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We study a winner-take-all R&D race where firms are privately informed about the uncertain arrival rate of the invention. Due to the interdependent-value nature of the problem, the equilibrium displays a strong herding effect that distinguishes our framework from war-of-attrition models. Nonetheless, equilibrium expenditure in R&D is sub-optimal when the planner is sufficiently impatient. Pessimistic firms prematurely exit the race, so that the expected discounted amount of R&D activity is inefficiently low. This result stands in contrast to the overinvestment in research that is typical of winner-take-all R&D races without private information. We conclude that secrecy in R&D inefficiently slows down the pace of innovation.

Keywords: R&D; experimentation; innovation; private information; herding (search for similar items in EconPapers)
JEL-codes: D24 D43 D44 D82 D83 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-10
New Economics Papers: this item is included in nep-com and nep-mic
Note: CFP 1296
References: View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published in Journal of Economic Theory (March 2010), 145(2): 639-660

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