A model to assess the value of an intermediate R&D result

A framework is offered for assessing the value of an intermediate result in an R&D project under competition. The assessed value of an intermediate result can be used as a minimum price acceptable to the inventor (reservation price) when the knowledge is disseminated to others. This issue is especially important if a firm (or society) is concerned about the distributive aspect of access to superior knowledge. The model discussed incorporates a number of structural variables, including research cost, future development cost, potential profits, rivalry, and discount rate. For invention production functions with the memorylessness property (e.g. exponential functions), a closed-form equation for the reservation price is derived. How the model can be applied in a competitive R&D situation is demonstrated.<
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