Abstract
In his analysis of the behavior of a firm subject to stochastic regulatory review in an earlier issue of this Journal, Klevorick uses some well-known results concerning the strict concavity of composite functions to prove the unique existence of the firm's optimal research and investment levels in each period. Unfortunately some of these well-known results are not generally correct. Hence the proof of Theorem 2 is incorrect as stated. See Klevorick's accompanying reply for his corrections of the proof.
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