Journal of Economic Growth

, Volume 5, Issue 1, pp 65–85

Too Much of a Good Thing? The Economics of Investment in R&D

  • Charles I. Jones
  • John C. Williams

DOI: 10.1023/A:1009826304308

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.

endogenous growthoptimal R&Dexternalities

Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Charles I. Jones
    • 1
  • John C. Williams
    • 2
  1. 1.Department of EconomicsStanford UniversityStanford
  2. 2.Federal Reserve SystemWashington