Uncertainty and the Dynamics of R&D
Uncertainty varies strongly over time, rising by 50% to 100% in recessions and by up to 200% after major economic and political shocks. This paper shows that higher uncertainty reduces the responsiveness of R&D to changes in business conditions - a "caution-effect" - making it more persistent over time. Thus, uncertainty will play a critical role in shaping the dynamics of R&D through the business cycle, and its response to technology policy. I also show that if firms are increasing their level of R&D then the effect of uncertainty will be negative, while if firms are reducing R&D then the effect of uncertainty will be positive.
I would like to thank Ran Abramitzky, Janice Eberly, Avner Grief, John Haltiwanger, John Leahy and seminar audiences at the Stanford Junior Lunch and the AEA. This is a draft of my AER Papers and Proceedings paper. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Nick Bloom, 2007. "Uncertainty and the Dynamics of R&D," American Economic Review, American Economic Association, vol. 97(2), pages 250-255, May. citation courtesy of