Measuring the Private Economic Benefits of R&D

Rajib Doogar

University of Washington, Bothell

Marion E. McHugh III

Furman University

December 12, 2011

The duration and magnitude of the private economic benefits obtained from firm-level R&D outlays are important to managers, investors and policy-makers. We present a modeling and estimation approach that facilitates reliable estimation of these benefits under mild a priori assumptions. Our estimates of R&D useful life and realized returns shed light on three important debates in the literature: Do firms invest optimally in R&D? Do investors entertain rational expectations about firm-level R&D benefits? Has the cost of R&D capital declined over time? We answer each of these questions in the affirmative. Further, our evidence indicates that conventional measures of R&D capital stock are grossly overstated.

Number of Pages in PDF File: 41

Keywords: R&D, private returns, useful life, depreciation, capital stocks, lag structure, autocorrelation, investor expectations, cost of capital

JEL Classification: C23, D01, D22, D24, G31, L23, M11, M41, O32

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Date posted: December 13, 2011 ; Last revised: January 20, 2012

Suggested Citation

Doogar, Rajib and McHugh, Marion E., Measuring the Private Economic Benefits of R&D (December 12, 2011). Available at SSRN: https://ssrn.com/abstract=1971287 or http://dx.doi.org/10.2139/ssrn.1971287

Contact Information

Rajib Doogar (Contact Author)
University of Washington, Bothell ( email )
18807 Beardslee Boulevard
Box 358584
Bothell, WA 98011-1712
United States
(425) 352-3332 (Phone)
Marion E. McHugh III
Furman University ( email )
Greenville, SC
United States
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