R&D Uncertainty and Cycles

Nicolas Crouzet and Janice Eberly

AEA Papers and Proceedings, 2026, vol. 116, 504-509

Abstract: Investment in equipment and structures is one of the most cyclical components of GDP, a fact often associated with a negative response to heightened uncertainty in recessions. R&D investment, by contrast, is only mildly procyclical. We show that this difference could arise because of a positive response of R&D investment to uncertainty promoting more research, development, and experimentation, a feature of most recessions but most notably during COVID-19. Both effects are distinct manifestations of real options, one in which costly reversibility delays investment, and the other in which investment enhances resolution of uncertainty.

JEL-codes: E22 E23 E32 G31 I12 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/pandp.20261081

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