NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Optimal Dynamic R&D Programs

Gene M. Grossman, Carl Shapiro

NBER Working Paper No. 1658 (Also Reprint No. r0994)
Issued in July 1985
NBER Program(s):   PR

We study the optimal pattern of outlays for a single firm pursuing an R&D program over time. In the deterministic case, (a) the amount of progress required to complete the project is known, and (b) the relationship between outlays and progress is known. In this case, it is optimal to increase effort over time as the project nears completion. Relaxing (a), we find in general a simple, positive relationship between the optimal expenditure rate at any point in time and the (expected) value at that time of the research program. We also show that, for a given level ofexpected difficulty, a riskier project is always preferred to a safe project. Relaxing (b), we find again that research outlays increase as further progressis made.

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Document Object Identifier (DOI): 10.3386/w1658

Published: Grossman, Gene M. and Carl Shapiro. "Optimal Dynamic R&D Programs," Rand Journal of Economics, Vol. 17, No. 4, Winter 1986, pp. 581-593. citation courtesy of

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