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Too Much of a Good Thing? The Economics of Investment in R&D

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  • Charles I. Jones
  • John C. Williams

Abstract

Research and development is a key determinant of long-run productivity and welfare. A central issue is whether a decentralized economy undertakes too little or too much R&D. We develop an endogenous growth model that incorporates parametrically four important distortions to R&D: the surplus appropriability problem, knowledge spillovers, creative destruction, and duplication externalities. Calibrating the model, we find that the decentralized economy typically underinvests in R&D relative to what is socially optimal. The only exceptions to this conclusion occur when the duplication externality is strong and the equilibrium real interest rate is simultaneously high. Copyright 2000 by Kluwer Academic Publishers

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 95006.

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Handle: RePEc:wop:stanec:95006

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  1. Zvi Griliches, 1998. "Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 134-156 National Bureau of Economic Research, Inc.
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  7. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  9. Scherer, F M, 1982. "Inter-Industry Technology Flows and Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 627-34, November.
  10. Ariel Pakes & Mark Schankerman, 1984. "The Rate of Obsolescence of Patents, Research Gestation Lags, and the Private Rate of Return to Research Resources," NBER Chapters, in: R & D, Patents, and Productivity, pages 73-88 National Bureau of Economic Research, Inc.
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  17. Bernstein, Jeffrey I & Nadiri, M Ishaq, 1989. "Research and Development and Intra-industry Spillovers: An Empirical Application of Dynamic Duality," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 249-67, April.
  18. Finn E. Kydland & Edward C. Prescott, 1989. "Hours and employment variation in business cycle theory," Discussion Paper / Institute for Empirical Macroeconomics 17, Federal Reserve Bank of Minneapolis.
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  21. Basu, S., 1993. "Procyclical Productivity: Overhead Inputs or Cyclical Utilization," Papers 93-25, Michigan - Center for Research on Economic & Social Theory.
  22. Ariel Pakes & Mark Schankerman, 1979. "The Rate of Obsolescence Of Knowledge, Research Gestation Lags, and the Private Rate of Return to Research Resources," NBER Working Papers 0346, National Bureau of Economic Research, Inc.
  23. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
  24. Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
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