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Abstract

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:	https://doi.org/10.1111/1756-2171.12181
Copyright Information:	Copyright 2017 The RAND Corporation
Related URLs:	UTAS Profile: Fryges, H
Item Statistics:	View statistics for this item

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