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• Charles I. Jones
• John C. Williams

Empirical research in the micro productivity literature consistently supports the notion that there is too little R&D. However, the methodology of this literature, based on the neoclassical growth model, is challenged by new growth theory, which emphasizes a richer description of the relationship between R&D and productivity. In particular, it allows for incentives that lead to overinvestment in R&D. We incorporate several distortions to R&D into a general equilibrium growth model that provides a framework for the analytical and empirical analysis of the degree of over- or underinvestment in R&D. We derive the relationship between the social rate of return to R&D and the parameters estimated in the productivity literature. Surprisingly, our results indicate that estimates in the productivity literature represent lower bounds on the social rate of return to R&D and that the bias is limited to the overall growth rate of the economy. Additional supporting evidence for underinvestment is provided by the implied equilibrium R&D share from a calibrated version of the theoretical model.

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 96005.

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Handle: RePEc:wop:stanec:96005

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• Article
  • Jones, Charles I & Williams, John C, 2000. " Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March. [Downloadable!] (restricted)
• Paper
  • John C. Williams & Charles I. Jones, 1995. "Too much of a good thing? The economics of investment in R&D," Finance and Economics Discussion Series 95-39, Board of Governors of the Federal Reserve System (U.S.).
  • Charles I. Jones & John C. Williams, . "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 95006, Stanford University, Department of Economics.
  • Charles I. Jones & John C. Williams, 1999. "Too Much of a Good Thing? The Economics of Investment in R&D," NBER Working Papers 7283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  • Charles I. Jones & John C. Williams, 1999. "Too Much of a Good Thing? The Economics of Investment in R&D"," Working Papers 99015, Stanford University, Department of Economics. [Downloadable!]
  • Jones, C-I & Williams, J-C, 1996. "Too Much of a Good Thing? The Economics of Investment in R&D," Papers 538, Harvard - Institute for International Development.

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This page was last updated on 2009-10-31.