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Evaluation and Learning in R&D Investment

Author

Listed:
  • Alexander P. Frankel
  • Joshua L. Krieger
  • Danielle Li
  • Dimitris Papanikolaou

Abstract

We examine the role of spillover learning in shaping the value of exploratory versus incremental R&D. Using data from drug development, we show that novel drug candidates generate more knowledge spillovers than incremental ones. Despite being less likely to reach regulatory approval, they are more likely to inspire subsequent successful drugs. We introduce a model where firms are better able to evaluate the viability of incremental drugs, but where investing in novel drugs helps firms learn about future projects. Firms appear to put more value on evaluation versus learning, and those patterns are in-part driven by the appropriability of spillovers.

Suggested Citation

  • Alexander P. Frankel & Joshua L. Krieger & Danielle Li & Dimitris Papanikolaou, 2023. "Evaluation and Learning in R&D Investment," NBER Working Papers 31290, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31290
    Note: CF EH PR
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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