Option game on R&D investment decision under uncertainty: The case of labor-managed and profit-maximizing firms

Abstract

Based on the uncertainty of market size and results of R&D, combining with characters of labor-managed firms, we develop a model of technology innovation in the duopoly market of labor-managed and profit-maximizing firm coexisting, and analyze the effects of some facts on option value of R&D investment in the labor-managed firm. Our results show that option value of R&D investment in the labor-managed firm is proportional to the raise of labor's productivity, and inversely proportional to the maximal investment of successful R&D. However, option value of R&D investment in the labor-managed firm has uncertain relation to its own R&D investment and expectant market size, which is different from the results of profit-maximizing firms.