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Estimating dynamic R&D choice: an analysis of costs and long-run benefits

Peters, B, Roberts, MJ, Vuong, VA and Fryges, H 2017 , 'Estimating dynamic R&D choice: an analysis of costs and long-run benefits' , Rand Journal of Economics, vol. 48, no. 2 , pp. 409-437 , doi:

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This article estimates a dynamic structural model of discrete Research and Development (R&D)investment and quantifies its cost and long-run benefit for German manufacturing firms. The model incorporates linkages between R&D choice, product and process innovations, and future productivity and profits. The long-run payoff to R&D is the proportional difference in expected firm value generated by the investment. It increases firm value by 6.7% for the median firm in high-tech industries but only 2.8% in low-tech industries. Simulations show that reductions in maintenance costs of innovation significantly raise investment rates and productivity, whereas reductions in startup costs have little effect.

Item Type: Article
Authors/Creators:Peters, B and Roberts, MJ and Vuong, VA and Fryges, H
Keywords: productivity, innovation, industry
Journal or Publication Title: Rand Journal of Economics
Publisher: Rand
ISSN: 0741-6261
DOI / ID Number:
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Copyright 2017 The RAND Corporation

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