TY  - JOUR
AU  - Grossman,Gene M.
AU  - Shapiro,Carl
TI  - Optimal Dynamic R&D Programs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1658
PY  - 1988
Y2  - March 1988
UR  - http://www.nber.org/papers/w1658
L1  - http://www.nber.org/papers/w1658.pdf
N1  - Author contact info:
Gene M. Grossman
International Economics Section
Department of Economics
Princeton University
Princeton, NJ 08544
Tel: 609/258-4823
Fax: 609/258-1374
E-Mail: grossman@princeton.edu

Carl Shapiro
Deputy Assistant Attorney General for Economics
U.S. Department of Justice, Antitrust Division
950 Pennsylvania Avenue
Washington, DC 20530
Tel: 202-514-0731
Fax: 202-514-0306
E-Mail: shapiro@haas.berkeley.edu
AB  - 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.
ER  -