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تابع ارزش
Value Functions Denote by t the endogenous rate of creative destruction along the BGP, i.e. the aggregate rate of external innovation coming from both entrants and incumbents.
As for entrants (firms with no products), their value function is given by the following equation
We are now ready to solve for the value function and find optimal R&D intensities.
Proposition 3 (Value functions) Assuming that there is positive entry in equilibrium (xe > 0), the value for a firm of size n = 1 is , where
n (the value of owning n products) solve the value function in (22), and satisfy (27) and (28), respectively
;
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