Too Much of a Good Thing? The Economics of Investment in R&D
- Cite this article as:
- Jones, C.I. & Williams, J.C. Journal of Economic Growth (2000) 5: 65. doi:10.1023/A:1009826304308
Research and development is a key determinant of long-run productivity and welfare. A central issue is whether a decentralized economy undertakes too little or too much R&D. We develop an endogenous growth model that incorporates parametrically four important distortions to R&D: the surplus appropriability problem, knowledge spillovers, creative destruction, and duplication externalities. Calibrating the model, we find that the decentralized economy typically underinvests in R&D relative to what is socially optimal. The only exceptions to this conclusion occur when the duplication externality is strong and the equilibrium real interest rate is simultaneously high.