Uncertainty and the Dynamics of R&D

Nicholas Bloom ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Uncertainty varies strongly over time, rising by 50% to 100% in recessions and by up to200% after major economic and political shocks. This paper shows that higher uncertaintyreduces the responsiveness of R&D to changes in business conditions - a "caution-effect" -making it more persistent over time. Thus, uncertainty will play a critical role in shaping thedynamics of R&D through the business cycle, and its response to technology policy. I alsoshow that if firms are increasing their level of R&D then the effect of uncertainty will benegative, while if firms are reducing R&D then the effect of uncertainty will be positive.

Keywords: R&D; uncertainty; real options (search for similar items in EconPapers)
JEL-codes: D92 D8 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino
Date: 2007-05
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Related works:
Working Paper: Uncertainty and the Dynamics of R&D (2007)
Journal Article: Uncertainty and the Dynamics of R&D (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0792

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