Optimization of R&D Investment under Technology Spillovers: A Model and a Case Study (Sony Corporation)

Izmodenova-Matrossova, K., Tarasyev, A.M., & Watanabe, C. (2003). Optimization of R&D Investment under Technology Spillovers: A Model and a Case Study (Sony Corporation). IIASA Interim Report. IIASA, Laxenburg, Austria: IR-03-040

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Abstract

This work is devoted to characterizing an optimal R&D investment policy for a growing economy taking into account the phenomenon of technology spillovers. We focus on the issue of a reasonable balance between domestic technologies and assimilated technology spillovers. Both factors require R&D expenditures inducing increase in production rate in the short run. The efficiency of the utilization of spillover technologies depends on the firm's assimilation capacity. The assimilation capacity is a function of the level the technology stock and ability to maximize the benefits of a learning exercise and, consequently, of the level of accumulated R&D expenditures. The domestic technology stock supposes high inputs into scientific, technological and production research. In the long run R&D investment leads to increase of sales and production diversity. We also take into account a nonlinear effect of the technology intensity on growth in production rate.

The model is applied on a company level. We identify model's parameters using real data series (in particular, for the Sony Corporation).

Using dynamic optimality principles the corresponding model is analyzed and the optimal level for the R&D intensity is constructed. The uniqueness of the optimal solution is stated and the properties of optimal regimes are explored.

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