Finance and Economics Discussion Series (FEDS)
May 1997
Measuring the Social Return to R&D
Charles I. Jones and John C. Williams
Abstract:
A large, empirical literature reports estimates of the rate of return to R&D ranging from 30 percent to over 100 percent, supporting the notion that there is too little private investment in research. This conclusion is challenged by the new growth theory. We derive analytically the relationship between the social rate of return to R&D and the coefficient estimates of the empirical literature. We show that these estimates represent a lower bound on the true social rate of return. Using a conservative estimate of the rate of return to R&D of about 30 percent, optimal R&D investment is at least four times larger than actual investment.
Full paper (118 KB Postscript)Keywords: Social rate of return, research and development, endogenous growth
PDF: Full Paper
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