The Market for R&D Failures
2018
Shalem, Roy | Trajtenberg, Manuel
The informational structure of R&D is characterized by the fact that rms are exposed to more information related to R&D successes of their competitors than to one that reveals their failures. This paper theoretically explores the feasibility of trading knowledge of R&D failures. The implications of constructing a market for R&D failures are substantive, in that they may decrease the effective cost of R&D, shorten the average time to discovery and increase the number of active R&D projects. We present the conditions required for a mutually bene cial trading of R&D failures information between competitors, as well as design trading mechanisms and policy implications that would account for obstacles such as moral hazard, verication, over-investment and private gains.
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