The Effect of R&D on Quality, Productivity, and Welfare

Mons Chan, Amil Petrin and Frédéric Warzynski

No 30950, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we provide a methodology that jointly studies production and demand for multi-product firms using detailed firm-product level data from Denmark. We estimate marginal cost by combining production function estimation with a cost function that allows for quasi-fixed inputs. We use a discrete choice demand model that extends insights from Berry, Levinsohn and Pakes (1995) to obtain a measure of the demand shock (quality). We estimate the relationship between product (process) R&D and quality (efficiency), and find strong evidence that process innovation is related to higher efficiency, while product innovation is associated with higher product quality. We discuss the welfare implications of these two distinct innovation activities.

JEL-codes: L1 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-com, nep-eff, nep-ind, nep-sbm and nep-tid
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