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R&D Uncertainty and Cycles

Author

Listed:
  • Nicolas Crouzet
  • Janice C. Eberly

Abstract

Investment in equipment and structures is one of the most cyclical components of GDP, a fact often associated with a negative response to heightened uncertainty in recessions. R&D investment, by contrast, is only mildly procyclical. We show that this difference could arise because of a positive response of R&D investment to uncertainty - promoting more research, development, and experimentation - a feature of most recessions but most notably during COVID. Both effects are distinct manifestations of real options, one in which costly reversibility delays investment, and the other in which investment enhances resolution of uncertainty.

Suggested Citation

  • Nicolas Crouzet & Janice C. Eberly, 2026. "R&D Uncertainty and Cycles," NBER Working Papers 34838, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34838
    Note: AP EFG ME
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    More about this item

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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