Closed-loop equilibrium in a multi-stage innovation race (Q1404148)

The purpose of this paper is to investigate a multistage model of an R and D race where the players have multiple projects. The author uses perturbation methods for general dynamic games that can be expressed as analytic operators in a Banach space. This paper contains also an analysis of the problem of computing second order asymptotically valid solutions for an equilibrium and socially optimal decisions to determine qualitative properties of an equilibrium. Moreover the author find that innovators invest relatively too much on risky projects. Strategic reactions are ambiguous in general; in particular, a player may increase expeditures as his opponent moves ahead of him.