Innovation policy involves trading off monopoly output and pricing today in exchange for incentives for firms to develop new products. While existing research demonstrates that expected profits fuel R&D investments, little is known about the novelty of funded projects. We expand this literature...

We provide evidence that risk aversion leads pharmaceutical firms to underinvest in radical andnovel innovation. We do so by introducing a new measure of novelty: a drug candidate is novelif it is molecularly distinct from prior candidates. Using our measure, we show that firms face arisk-reward...

The Belgian pharmaceutical sector has been accorded a leading role in the attainment of the R&D investment targets which the EU Member States set themselves as part of the Lisbon strategy. To gain a better insight into that sector’s research activities, the NBB conducted an ad hoc survey in...

The Belgian pharmaceutical sector has been accorded a leading role in the attainment of the R&D investment targets which the EU Member States set themselves as part of the Lisbon strategy. To gain a better insight into that sector's research activities, the NBB conducted an ad hoc survey in...

We develop a simple model of competition for the market that shows that, contrary to the Arrow view, endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions with a Tobit model based on a unique dataset...

This paper presents a model to explain why both industry leaders and follower firms often invest in R&D and explores the welfare implications of these R&D investment choices. Regardless of initial conditions, the equilibrium path in this model involves gradually convergence to a balanced growth...

This paper explores offshoring of firms’ research and development functions. Our analysis employs a previously untapped and unique Eurostat International Sourcing Survey. The results are easy to summarize. First, the magnitude of R&D offshoring is small. Second, a large majority of R&D is...

The real option theory provides a useful tool to evaluate an R&D investment under uncertainty because, unlike the NPV (Net Present Value), it considers the managerial flexibility that may be expand the investment opportunity value. However, most R&D investment projects are open to competing...

The globalization of R&D activities has continued its growth path as companies are increasingly trying to capture knowledge and market opportunities internationally. The rapid evolution of national economies and the ways to conduct knowledge-intensive businesses has led researchers and analysts...