Estimating Dynamic R&D Demand: An Analysis of Costs and Long-Run Benefits
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.
We are grateful to Uli Doraszelski, Ken Judd, Jacques Mairesse, Joris Pinkse, Spiro Stefanou, Jim Tybout, and Hongsong Zhang for helpful comments and discussions. We thank the Center for European Economic Research (ZEW) for providing data access and research support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
"Estimating Dynamic RD Demand: An Analysis of Costs and Long-Run Benefits", with Bettina Peters, Van Anh Vuong, and Helmut Fryges, Rand Journal of Economics, Vol. 48, No. 2 (Summer 2017), pp. 409-437