Abstract
We compare the R&D decision of a second best social surplus maximizer to that of a profit maximizing monopolist in a second best world, namely one in which a monopolist makes production decisions. We show that a monopolist underinvests in R&D relative to a second best social surplus maximizer. We show that the expected present value social surplus under a monopoly situation increases with the production technology except at the technology level where a monopolist stops doing R&D.
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