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

Bettina Peters, Mark J. Roberts, Van Anh Vuong, Helmut Fryges

Research output: Contribution to journalArticle

10 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)409-437
Number of pages29
JournalRAND Journal of Economics
Volume48
Issue number2
DOIs
StatePublished - Jun 1 2017

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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