This paper investigates how an initial asymmetry in production costs aects costreducing R&D investment decisions, welfare, and the welfare dierences between noncooperative R&D investment and a research joint venture. Using a duopoly model in which R&D investment generates spillovers and builds absorptive capacity, we nd that under both R&D investment regimes, increasing the initial cost asymmetry reduces welfare due to a reduction in aggregate R&D investment, higher production costs, and lower aggregate production. We also nd that if there exists a spillover value for which welfare under the two regimes is the same, then increasing the initial cost asymmetry has an ambiguous eect
