TY  - JOUR
AU  - Erkal,Nisvan
AU  - Scotchmer,Suzanne
TI  - Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14940
PY  - 2009
Y2  - May 2009
UR  - http://www.nber.org/papers/w14940
L1  - http://www.nber.org/papers/w14940.pdf
N1  - Author contact info:
Nisvan Erkal
Department of Economics
University of Melbourne
VIC 3010 Australia
Tel: +61-3-8344-3307
E-Mail: n.erkal@unimelb.edu.au

Suzanne Scotchmer
Department of Economics
Evans Hall
University of California
Berkeley, CA  94720-3880
Tel: 510/643-8562
Fax: 510/643-9657
E-Mail: scotch@berkeley.edu
AB  - We investigate rewards to R&D in a model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We characterize the welfare-maximizing reward structure when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."
ER  -