Firm Level Behavior in Repeated R&D Races

This paper contains an analysis of a quality ladders growth model with firm-level decreasing returns R&D technology. This analysis explains the relationship between competition in R&D races and firm R&D efforts. While competition proves to have a positive effect on industry growth rates, the relationship between competition and individual firm R&D effort is negative and dominated by intertemporal effects. The analysis also demonstrates that differences between the socially optimal and free market growth rates increase as the economy's resource endowment increases.