Description:

The aim of this project is to characterize intertemporally optimal investment strategies of financially constrained firms which compete on an established market and at the same time invest in the development of new products to be introduced to the market. Both the success of product innovation activities and the evolution of the demand for new products is assumed to be stochastic and due to financial constraints generates bankruptcy risk for the firms. A combination of analytical and numerical methods will be used to characterize the equilibrium profile of firms' investment strategies. Based on this it will be studied how the tightness of financial constraints affects innovation and bankruptcy rates of firms of different size. Our approach will also allow to analyze the implications of innovation subsidies and innovation cooperations between firms.