Measuring the Social Return to R&D

Preprint
Publisher Website
Google Scholar
    • preprint
      • Published in RePEc
Abstract
January 24, 1997, Version 2.00 Is there too much or too little private research and development (R&D)? A large empirical literature reports estimates of the rate of return to R&D ranging from 30% to over 100%, supporting the notion that there is too little private investment in research. However, this conclusion is challenged by the new growth theory, which emphasizes a richer description of the connection between R&D and productivity. In this paper we bridge the gap between the theoretical and empirical literatures. Using the framework of an R&D-based growth model, we derive analytically the relationship between the social rate of return to R&D and the coefficient estimates of the empirical literature. Somewhat surprisingly, we show that these estimates represent a lower bound on the true social rate of return. Furthermore, our analytic framework provides a direct mapping from the rate of return to the degree of underinvestment in research. Using a conservative estimate of the rate of return to R&D of about 30%, optimal R&D investment is at least four times larger than actual investment. This is a substantially revised version of an earlier paper, "Too Much of a Good Thing? The Economics of Investment in R&D"
All Related Versions

This publication has 0 references indexed in Scilit: