TY  - JOUR
AU  - Jones,Charles I.
AU  - Williams,John C.
TI  - Too Much of a Good Thing?  The Economics of Investment in R&D
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7283
PY  - 1999
Y2  - August 1999
UR  - http://www.nber.org/papers/w7283
L1  - http://www.nber.org/papers/w7283.pdf
N1  - Author contact info:
Charles I. Jones
Graduate School of Business
Stanford University
655 Knight Way
Stanford, CA 94305-4800
Tel: 510/288-8650
Fax: 650/725-0468
E-Mail: chad.jones@stanford.edu

John Williams
Federal Reserve Bank of San Francisco
Executive Offices
101 Market St.
San Francisco, CA 94105
Tel: (415) 974-2121
E-Mail: john.c.williams@sf.frb.org
AB  - Research and development (R&D) 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 congestion externalities. We show that our model is consistent with the available evidence on R&D, growth, and markups. Calibrating the model to micro and macro data, 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 both the congestion externality is extremely strong and the equilibrium real interest rate is very high. These results are robust to reasonable variations in model parameters.
ER  -