The literature on R&D races suggests that noncolluding firms invest excessively in R&D. We show that this result depends critically on the winner-take-all assumption. Although rents continue to be dissipated once the winner-take-all assumption is relaxed because firms in general fail to provide the optimal R&D effort, the mechanisms behind this rent dissipation change with the degree of patent protection. We then illustrate how the patent system can be used to elicit the optimal R&D effort.
Doraszelski, U. (2008), "Chapter 1 Rent Dissipation in R&D Races", Cellini, R. and Lambertini, L. (Ed.) The Economics of Innovation (Contributions to Economic Analysis, Vol. 286), Emerald Group Publishing Limited, Bingley, pp. 3-13. https://doi.org/10.1016/S0573-8555(08)00201-0
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