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Estimating the Effects of R&D on Bell System Productivity: A Model of Embodied Technical Change

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  • Roger H. Gordon
  • Mark Schankerman
  • Richard H. Spady

Abstract

This paper develops an econometric model of the effects of R&D effort on the magnitude and characteristics of technical change in the Bell system. We estimate simultaneously a vintage capital production function, embodying several distinct types of capital, and various factor demand functions for the Bell system during the post-war period. Each vintage of capital is assumed to differ in productivity according to a parametric function of R&D effort embodied in that vintage of capital. Allowance is also made for augmenting technical change in the non-capital inputs. The model is estimated on a new, extensive data set which contains detailed information on the vintage structure of investment indifferent types of capital in the Bell system. Most previous papers in the field have assumed that technical changeis disembodied. However, we find that a model assuming capital-embodied technical change fits the data much better than one making the traditional assumption that technical change is disembodied. We use the parameter estimates to calculate the ex post rate of return earned on R&D expenditures at Bell Laboratories and the improvements in the productivity of specific capital inputs which are due to those R&D expenditures. The results suggest not only that the return to R&D expenditures has been very high, but also that it has been growing over time. In addition,the rate of increase in the productivity of capital inputs has risen over time. The model fails to produce a plausible estimate for the degree of returns to scale, but the results on the return to R&D effort are reasonably insensitive to what we assume about the degree of economies of scale.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1607.

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Date of creation: May 1987
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Publication status: published as Gordon, Roger H., Mark Schankerman and Richard H. Spady. "Estimating the Effects of R&D on Bell System Productivity: A Model of Embodied Technical Change," Festschift in honor of William Baumol, edited by Maurice Peston and Richard Quandt. Oxford: Philip Allan Publishers, NY: Barnes & Noble, 1986.
Handle: RePEc:nbr:nberwo:1607

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  1. Bawa, Vijay S & Sibley, David S, 1980. "Dynamic Behavior of a Firm Subject to Stochastic Regulatory Review," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(3), pages 627-42, October.
  2. Zvi Griliches, 1998. "Returns to Research and Development Expenditures in the Private Sector," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 49-81 National Bureau of Economic Research, Inc.
  3. Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
  4. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
  5. Martin Neil Baily, 1982. "The Productivity Growth Slowdown by Industry," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(2), pages 423-459.
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Cited by:
  1. Boyan Jovanovic & Saul Lach, 1991. "The Diffusion of Technology and Inequality Among Nations," NBER Working Papers 3732, National Bureau of Economic Research, Inc.
  2. Saul Lach & Rafael Rob, 1995. "R&D, investment and industry dynamics," Finance and Economics Discussion Series 95-47, Board of Governors of the Federal Reserve System (U.S.).

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