Journal of Economic Growth

, Volume 5, Issue 1, pp 65–85 | Cite as

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

  • Charles I. Jones
  • John C. Williams

Abstract

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 growth optimal R&D externalities 

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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

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