The optimality of R&D competition and its implications on growth and
welfare are analyzed in a dynamic general equilibrium model. By explicitly
incorporating pre-emptive R&D competition, the relationship between the
intensity of competition and the growth rate can be investigated. This paper
shows that in the competitive growth path, the number of research firms is
larger and the rate of growth is lower than in the optimal growth path. By
reducing entry into R&D competition by imposing an entry fee from which
the winner of competition is subsidized, this sub-optimality arising from
excessive competition could be overcome.