R&D incentives to cooperate and invest with licensing

In this paper, we evaluate the private incentive to cooperate comparing three different scenarios (R&D cooperation, and R&D competition with and without licensing), in terms of expected profits, industry probability of innovation, and expected welfare. We show that the feasibility of licensing increases the appropriability of returns and may stimulate R&D investment; moreover, licensing an innovation may lead to the highest social welfare. However, some conflict may emerge between the public and private incentive to license the innovation, and between different policy targets.