When Spillovers Enhance R&D Incentives
Journal of Quantitative Economics
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.
Chatterjee, Rittwik; Chattopadhyay, Srobonti; and Kabiraj, Tarun, "When Spillovers Enhance R&D Incentives" (2019). Journal Articles. 568.