Abstract
The paper explores how the firm might optimally choose its research and development projects, taking into account both the time path of returns and the discount factor. The dynamic-programming method is used to develop examples and it is shown that under plausible assumptions, the rate of discount has a strong influence on the decision to invest or not. It is argued that static misallocation because of temporary monopoly may be unimportant and that an interest subsidy may be an efficient way to encourage technological progress.
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Presidential Address presented at the Forty-Fourth International Atlantic Economic Conference, Philadelphia, Pennsylvania, October 9–12, 1997.
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Gehrels, F. On optimizing progress in a diversified economy. Atlantic Economic Journal 26, 1–7 (1998). https://doi.org/10.1007/BF02298367
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DOI: https://doi.org/10.1007/BF02298367