Research and Productivity

Jovanovic, B., & Nyarko, Y. “Research and Productivity.” Creation and Transfer of Knowledge, edited by Navaretti et al., Springer, Berlin, Heidelberg, 1995.

We model research as a signal on an unknown parameter of a technology. We distinguish applied from basic research and show that firms in the same industry can optimally choose different research portfolios, and that basic research van seem to have a higher rate of return than applied research, even though it really doesn’t - essentially, firms on a “fast track” upgrading policy opt for basic research but fast and slow-track upgrading policies can coexist in a long-run equilibrium.

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