Essay on Market for R&D Failures

3321 Words 14 Pages
Mike Rondesko, KaChun Fung, Daniel Lozano, Jose Romero
Professor Pe’er
Final Essay
18 December 2012

Market for Trading R&D failures

Advancing ones knowledge based on past failures is vital towards furthering intellectual development. Without understanding as to why something doesn’t work, it would be very unlikely that an efficient goal can be reached. This same concept applies to research and development projects in the modern day industry. Using the knowledge of recent failures is what drives progress and technological advancements. However, discovering failures is insensitive to time, resources, and capital in an ever changing world of product innovation. If knowledge of research and development failures were known to firms
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Because of the current lack of transparency in research and development, inaccurate information would be extremely difficult to decipher. Nonetheless, a truthful exchange of knowledge would certainly possess value for both parties. A market that traded R&D failures would have unique characteristics. Because knowledge is an intangible asset it would be quite difficult to place a value on it. Firms would have to determine its value by recording the costs that were incurred through the time it took in reaching innovation. The intellectual property can then be sold to a rivaling firm at a price which would reflect time, capital, and resources forgone. This would create a mutual exchange as one firm will benefit through capital while another benefits from intellectual property, thus directing their assets into alternative means of production. This platform will create greater incentive to undergo an R&D project as well as construct increasingly innovative markets that would be extremely favorable for consumers.
Eliminating the risk and uncertainty within R&D would certainly lead to more R&D projects. One of the biggest concerns within the traditional approach to R&D is the concept of risk. “Risk perceptions may lead to under-investment in R&D compared to the socially optimum level.” (Annex 2) If the trading of intellectual knowledge can reduce risk than

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