Document Type
Discussion Paper
Publication Date
10-1-2004
CFDP Number
1489
CFDP Pages
44
Abstract
We study a winner-take-all R&D race where firms are privately informed about the uncertain arrival rate of the invention. Due to the interdependent-value nature of the problem, the equilibrium displays a strong herding effect that distinguishes our framework from war-of-attrition models. Nonetheless, equilibrium expenditure in R&D is sub-optimal when the planner is sufficiently impatient. Pessimistic firms prematurely exit the race, so that the expected discounted amount of R&D activity is inefficiently low. This result stands in contrast to the overinvestment in research that is typical of winner-take-all R&D races without private information. We conclude that secrecy in R&D inefficiently slows down the pace of innovation.
Recommended Citation
Moscarini, Giuseppe and Squintani, Francesco, "Competitive Experimentation with Private Information" (2004). Cowles Foundation Discussion Papers. 1771.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1771