We model a two-stage R&D project with an abandonment option. Two types of uncertainty influence the decision 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...

This paper investigates whether firms innovate persistently or discontinuously over time using an innovation panel data set on German manufacturing and service firms for the period 1994–2002. It turns out that innovation behaviour is permanent at the firm–level to a very large extent. Using...