This article constructs a model of R&D with heterogeneous firms. Each firm's probability of success is a function of its sunk and recurrent R&D expenditures. The social gains from an innovation are not fully captured by the successful firm. The comparison of the social optimum and the market...

In any non-trivial state, policies decided at the top levels of government are administered by middle-level bureaucrats. I examine whether this agency problem can contribute to explaining state failure in matters of provision of public goods. I find some theoretical arguments to support the view...

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This paper applies conventional welfare-theoretic methods to study advertising which changes consumer tastes. In a wide range of empirically plausible circumstances, private profitability is seen to be necessary but not sufficient for the social desirability of a small amount of advertising. The...

This paper analyses optimal irreversible investment policy when profits are subject to a multiplicative geometric Brownian motion shock. The marginal product of capital is increasing initially and decreasing thereafter. In the latter range, optimal policy is familiar: capacity is added gradually...