Uncertainty and the dynamics of R&D

Nicholas Bloom

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Uncertainty varies strongly over time, rising by 50% to 100% in recessions and by up to 200% after major economic and political shocks. This paper shows that higher uncertainty reduces 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 the dynamics of R&D through the business cycle, and its response to technology policy. I also show that if firms are increasing their level of R&D then the effect of uncertainty will be negative, 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: D8 D92 O3 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2007-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (127)

Downloads: (external link)
http://eprints.lse.ac.uk/19724/ Open access version. (application/pdf)

Related works:
Journal Article: Uncertainty and the Dynamics of R&D (2007)
Working Paper: Uncertainty and the Dynamics of R&D (2007)
Working Paper: Uncertainty and the Dynamics of R&D (2007)
Working Paper: Uncertainty and the Dynamics of R&D (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:19724

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