The source of comparative advantage in the biotechnology industry: A real options approach

Sources of heterogeneity within the process of research and development (R&D) investment, such as international differences in the maximum per-period rate of investment and level of regulatory uncertainty, offer a plausible explanation for US comparative advantage in biotechnology. Using dynamic stochastic simulation, the results presented in this article suggest US biotechnology firms may initiate more R&D projects, innovate earlier and more rapidly, persevere longer in the face of mounting R&D costs, and successfully complete more R&D projects than European firms [Econ-Lit citations: F100, O310, O330]. © 2000 John Wiley & Sons, Inc.