@techreport{NBERw5321,
 title = "Research and Productivity",
 author = "Boyan Jovanovic and Yaw Nyarko",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "5321",
 year = "1995",
 month = "October",
 URL = "http://www.nber.org/papers/w5321",
 abstract = {We model research as a signal on an unknown parameter of a technology.  We distinguish applied from basic research and show that firms in the same industry can optimally choose different research portfolios, and that basic research can seem to have a higher rate of return than applied research, even though it really doesn't -- essentially, firms on a 'fast track' upgrading policy opt for basic research but fast and slow-track upgrading policies can coexist in a long-run equilibrium. We also derive the lag structure for how R&D affects the firm's stock of knowledge.  To a first approximation, the lags decay geometrically (as is typically assumed in practice) but the rate of decay is endogenous, and depends on how fast the firm is upgrading its technology.},
}