An analysis of the determinants of starting an R&D project

Sabien. D. Dobbelaere, Vrije Universiteit Amsterdam Faculteit der Economische Wetenschappen en Bedrijfskunde (FEWEB)

We study di¤erent determinants of real-life R&D decisions within a net present value framework. Our model includes a potential entrant who is endowed with a superior technology and threatens to drive the incumbent out of the market, Bertrand competition and multi-stage R&D with an abandonment option. Two types of uncertainty in‡uence the de-
cision to start R&D. Demand uncertainty is modelled as a lottery between a proportional
increase and decrease in demand. Technical uncertainty is modelled as a lottery between a
decrease and increase in the cost to continue R&D. A lottery becomes more divergent when the di¤erence between the outcomes of the lottery increases. We derive under which lottery probabilities more divergent demand and supply lotteries positively or negatively a¤ect the
decision to start R&D. Using CIS IV data for about 2400 German …rms in manufacturing and services, we assess the degree to which our data match our theoretical framework by identifying the non-traditional factors driving the decision to start R&D.

About the speaker
Dr Sabien. D. Dobbelaere currently is working in VU University Amsterdam, Department of Economics;Tinbergen Institute (TI) and Institute for the Study of Labor (IZA). Her research interestsare microeconomics (labor economics, industrial organization) and applied microeconometrics, with a focus on union behavior, imperfections in product and factor markets, the effect of globalisation on labor market performance and innovation behavior in imperfect markets.

Venue: unu-merit conference room

Date: 01 April 2010

Time: 14:30 - 16:00