Exploring heterogeneous returns to collaborative R&D: A marginal treatment effects perspective

I examine returns to collaborative R&D using the marginal treatment effects framework. This framework allows me to examine whether the impacts of participation in collaborative R&D on the benefits of product innovation are homogeneous, or if instead firms derive heterogeneous returns based on unobserved characteristics and expectations. Assuming that returns are indeed heterogeneous, I develop two alternative hypotheses representing different underlying mechanisms driving the connection between collaboration and expected returns: If firms evaluate the pros and cons of collaboration based on idiosyncratic traits and expectations, then it is logical to expect that those most likely to collaborate are also those most likely to derive significant benefits from collaboration. This represents the notion of positive selection. On the other hand, it might be possible that those firms least likely to collaborate are in fact those that would have benefited the most had they chosen to collaborate. This reflects the notion of negative selection. Using anonymized data from the 2006 Community Innovation Survey, I confirm that there exists significant heterogeneity in the returns to collaborative R&D due to both unobservable and observable firm characteristics; moreover, the findings clearly support the hypothesis of negative selection. It appears that collaborative R&D plays an equalizing role on the benefits of product innovation for resource-constrained firms.