Abstract
Chapter 3 confronts the challenge ofpredicting the return on R&D investments before they are made. It critiques traditional government methods that apply discounted cash flow analysis to individual R&D projects in isolation. Option theory and portfolio theory are used to identify potential enhancements to traditional methods. Chapter 3 also demonstrates that focusing exclusively on potential returns while ignoring risk is a fundamentally unsound practice. Methods often used by the private sector to form, value, and manage portfolios of R&D projects are summarized, including the “bucket” method, quantitative multi-objective methods, static choice methods, and dynamic management methods. While a portfolio perspective is rarely taken within government R&D programs, a few examples are identified and characterized.
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© 2015 Peter D. Linquiti
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Linquiti, P.D. (2015). R&D Portfolio Valuation and Formation. In: The Public Sector R&D Enterprise: A New Approach to Portfolio Valuation. Science, Technology, and Innovation Policy . Palgrave Pivot, New York. https://doi.org/10.1057/9781137542090_3
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DOI: https://doi.org/10.1057/9781137542090_3
Publisher Name: Palgrave Pivot, New York
Print ISBN: 978-1-349-50702-3
Online ISBN: 978-1-137-54209-0
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)