Cost-Reducing and Demand-Creating R&D With Spillovers
Richard C. Levin, Peter C. Reiss
NBER Working Paper No. 2876
This paper analyzes R&D policies when the returns to cost-reducing and demand-creating R&D are imperfectly appropriable and market structure is endogenous. Previous characterizations of appropriability are generalized to permit the possibility that own and rival R&D are imperfect substitutes. We also describe how. equilibrium expenditures on process and product R&D, as well as equilibrium market structure, depend on technological opportunities and spillovers. In contrast to previous work, diminished appropriability does not necessarily reduce R&D expenditures. For example, under some conditions, an increase in the extent of process (product) spillovers will lead to an increase in product (process) R&D. We estimate several variants of the model using manufacturing line of business data and data from a survey of R&D executives.
Document Object Identifier (DOI): 10.3386/w2876
Published: Richard C. Levin & Peter C. Reiss. "Cost-Reducing and Demand-Creating R&D with Spillovers," The RAND Journal of Economics, Vol. 19, No. 4 (Winter, 1988), pp. 538-556 (19 pages)
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