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An Exploration into the Determinants of Research Intensity

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  • Ariel Pakes
  • Mark Schankerman

Abstract

This paper explores the economic factors which determine the variation of research effort across firms. The intra-industry coefficient of variation of research intensity is much larger than those of traditional factors. We show that this important fact is consistent with the theoretical argument that knowledge possesses unique economic characteristics, and that the demand for research depends both on the parameters of the production function for knowledge and on the ability of the firm to appropriate the benefits from the knowledge it produces. We propose and implement a framework for decomposing the observed intra-industry variance In research intensity into three components: demand inducement, a firm-specific structural parameter, and errors in the observed variables. The main empirical findings are that errors in the variables (especially research) are important, that very little of the structural variance in research intensity is accounted for by demand inducement, and that the bulk of the variance is related to differences in the firm-specific parameter. Both the theoretical and empirical analysis indicate that it is not reasonable to treat the demand for research in a manner analogous to the demand for traditional inputs, including capital. Substantially richer models are required to provide insight into the structure of incentives driving the demand for research.

Suggested Citation

  • Ariel Pakes & Mark Schankerman, 1980. "An Exploration into the Determinants of Research Intensity," NBER Working Papers 0438, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0438
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    1. repec:cor:louvrp:-12 is not listed on IDEAS
    2. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    3. R. E. Lucas, 1967. "Tests of a Capital-Theoretic Model of Technological Change," Review of Economic Studies, Oxford University Press, vol. 34(2), pages 175-189.
    4. Jora R. Minasian, 1962. "The Economics of Research and Development," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 93-142 National Bureau of Economic Research, Inc.
    5. Robert Eisner, 1978. "Factors in Business Investment," NBER Books, National Bureau of Economic Research, Inc, number eisn78-1.
    6. Rosenberg, Nathan, 1963. "Technological Change in the Machine Tool Industry, 1840–1910," The Journal of Economic History, Cambridge University Press, vol. 23(04), pages 414-443, December.
    7. Aigner, Dennis J & Goldfeld, Stephen M, 1974. "Estimation and Prediction from Aggregate Data when Aggregates are Measured More Accurately than Their Components," Econometrica, Econometric Society, vol. 42(1), pages 113-134, January.
    8. Zvi Griliches, 1958. "Research Costs and Social Returns: Hybrid Corn and Related Innovations," Journal of Political Economy, University of Chicago Press, vol. 66, pages 419-419.
    9. Robert Eisner, 1978. "Introduction to "Factors in Business Investment"," NBER Chapters,in: Factors in Business Investment, pages 1-16 National Bureau of Economic Research, Inc.
    10. ZELLNER, Arnold & KMENTA, Jan & DREZE, Jacques H., 1966. "Specification and estimation of Cobb-Douglas production function models," CORE Discussion Papers RP 12, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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