When Spillovers Enhance R&D Incentives
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It is commonly believed that spillover reduces R&D incentives of a firm. This happens because of the appropriability problem. However, some empirical literature shows the possibility of enhanced R&D incentives under spillovers. In the literature this is explained under incomplete information, but we show this theoretically under complete information. We show in particular that in a duopoly there are situations when with no spillovers only one firm invests in R&D, but under spillovers both the firms invest. This occurs when there is complementarity in research and the spillover rate lies in an interval specified by the size of R&D investment.
KeywordsR&D spillovers Appropriability problem Complete information R&D incentives
JEL classificationsD43 L13 O31
Authors would like to thank two anonymous referees of this journal for important comments and suggestions. However, the usual disclaimer applies.
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