THE WELFARE EFFECTS OF COOPERATIVE RESEARCH-AND-DEVELOPMENT IN OLIGOPOLY WITH SPILLOVERS

This paper provides a more complete characterization of the welfare ef fects of cooperative cost-reducing R&D investments in Cournot oligopol y with spillovers. I show that R&D cooperation reduces both R&D spendi ng and social surplus when the spillover rate in R&D is neither suffic iently high nor sufficiently low. As the elasticity of the slope of th e inverse demand function increases, however, the set of spillover rat es over which cooperative R&D reduces social welfare shrinks, and in t he limit, cooperative R&D is socially beneficial for all spillover rat es.