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• Charles I. Jones
• John C. Williams

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.

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 99015.

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Date of creation: 06 Jul 1999
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Handle: RePEc:wop:stanec:99015

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• Article
  • Jones, Charles I & Williams, John C, 2000. " Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March. [Downloadable!] (restricted)
• Paper
  • Charles I. Jones & John C. Williams, . "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 96005, Stanford University, Department of Economics. [Downloadable!]
  • John C. Williams & Charles I. Jones, 1995. "Too much of a good thing? The economics of investment in R&D," Finance and Economics Discussion Series 95-39, Board of Governors of the Federal Reserve System (U.S.).
  • Charles I. Jones & John C. Williams, . "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 95006, Stanford University, Department of Economics.
  • Charles I. Jones & John C. Williams, 1999. "Too Much of a Good Thing? The Economics of Investment in R&D," NBER Working Papers 7283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  • Jones, C-I & Williams, J-C, 1996. "Too Much of a Good Thing? The Economics of Investment in R&D," Papers 538, Harvard - Institute for International Development.

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