Innovative R&D and Optimal Investment under Uncertainty in High-Tech Industries: An Implication for Emerging Economies,” Research Policy Journal 38, 2009: 1388–1395. (with Justin Yifu Lin and Yingyi Tsai).

This paper draws implications for the emerging economies, which mostly strive for convergence with the advanced countries by actively supporting the development of strategic industries, from the investment decisions of a representative integrated device manufacturer in the semiconductor industry facing volatile market demand for new invention. In a simple three-period model of product innovation with capacity installation under uncertainty, our main findings suggest that the interactions amongst the nature of investment depending upon industry-specific characteristics, the associated cost of adjustment, and market structure should be well understood before the public sector can commit to the development of certain high-tech industry such as semiconductor and information technology.

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