Firm's R&D Behavior Under Rational Expectations

Lakshmi Raut ()

Development and Comp Systems from University Library of Munich, Germany

Abstract: This paper formulates dynamic R\&D investment decisions of private firms as an optimal stochastic control problem. It derives explicitly R\&D investment decision rule and the cross equations parameter restrictions imposed by the rational expectations hypothesis, using the Riccati equations only and not requiring the use of Wiener-Kolmogorov prediction formula. Identification and estimation of the structural parameters are essential for evaluating policies such as R\&D subsidies, firm size, market concentration so that the evaluations of these policies stand against Lucas critique. We find conditions under which the structural parameters are identified; we then discuss econometric procedures for using aggregate time series data or panel data on firms to deal with unobserved technological knowledge, to estimate the structural parameters, and to test the model.

Keywords: R&D; Rational Expectations; stochastic control (search for similar items in EconPapers)
JEL-codes: C51 O31 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1997-05-30
New Economics Papers: this item is included in nep-dge and nep-tid
Note: Type of Document - postscript; prepared on IBM PC - PC-TEX; to print on PostScript; pages: 22 ; figures: no-figures. For comments and reference.
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Related works:
Journal Article: Firm's R & D Behavior Under Rational Expectations (2005)
Working Paper: Firm's R & D Behavior Under Rational Expectations (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpdc:9705004

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