Stochastics of innovation processes (Q1117132)

The stopping rule paradigm in optimal stochastic control theory is used to examine the effects of uncertainty and market structure on the R \& D process in an economy. A class of stochastic models is proposed which analyzes important questions concerning the amount of R \& D and the timing of the introduction of innovations to the marketplace. The firm undertaking R \& D maximizes an expected discounted payoff subject to the dynamics of the R \& D process. The best strategy is to stop at some optimal value.