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R&D and Economic Growth

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  • Nancy L. Stokey

Abstract

The aggregate rate of R&D in a competitive economy is compared with the optimal rate. The optimal rate of R&D is shown to be the same for all preferences in a broad family, while the competitive rate is sensitive to the form of substitutability among products and so can vary dramatically within a family. The second-best level of R&D is shown to be also common within a family and equal to the optimal rate. Numerical examples suggest that diminishing returns in the innovation technology is the most important potential source for excessive R&D in a competitive economy.

Suggested Citation

  • Nancy L. Stokey, 1995. "R&D and Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(3), pages 469-489.
    • Handle: RePEc:oup:restud:v:62:y:1995:i:3:p:469-489.
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    File URL: http://hdl.handle.net/10.2307/2298038
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