NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimating Dynamic R&D Demand: An Analysis of Costs and Long-Run Benefits

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

NBER Working Paper No. 19374
Issued in August 2013, Revised in February 2016
NBER Program(s):IO, PR

This paper estimates a dynamic structural model of discrete R&D investment and quantifies its cost and long-run benefit for German manufacturing firms. The dynamic model incorporates linkages between the firm's R&D choice, product and process innovations, and future productivity and profits. The long- run payoff to R&D is measured as the proportional difference in expected firm value generated by the R&D investment. It increases firm value by 6.7 percent for the median firm in high-tech manufacturing industries but only 2.8 percent in low-tech industries. Simulations show that reductions in maintence costs of innovation significantly raise investment rates and productivity while reductions in startup costs have little effect.

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Document Object Identifier (DOI): 10.3386/w19374

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