The Rate of Obsolescence of Knowledge, Research Gestation Lags, and the Private Rate of Return to Research Resources

27 Pages Posted: 15 Feb 2001 Last revised: 17 Feb 2002

See all articles by Ariel Pakes

Ariel Pakes

National Bureau of Economic Research (NBER); Harvard University - Department of Economics

Mark A. Schankerman

London School of Economics and Political Science; Centre for Economic Policy Research (CEPR)

Date Written: May 1979

Abstract

This paper points out the conceptual distinction between the rates of decay in the physical productivity of traditional capital goods and that of the appropriate revenues accruing to knowledge-producing activities, and notes that it is the latter parameter which is required in any study which constructs a stock of privately marketable knowledge. The rate of obsolescence of knowledge is estimated from a simple patent renewal and the estimates are found to be comparable to evidence provided by firms on the lifespan of the output of their R&D activities. These estimates, together with mean R&D gestation lags, are then used to correct previous estimates of the private excess rate of return to investment in research. We find that after the correction, the private excess rate of return to investment in research, at least in the early 1960's, was close to zero, which may explain why firms reduced the fraction of their resources allocated to research over the subsequent decade.

Suggested Citation

Pakes, Ariel and Schankerman, Mark A., The Rate of Obsolescence of Knowledge, Research Gestation Lags, and the Private Rate of Return to Research Resources (May 1979). NBER Working Paper No. w0346. Available at SSRN: https://ssrn.com/abstract=260521

Ariel Pakes (Contact Author)

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Mark A. Schankerman

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Centre for Economic Policy Research (CEPR) ( email )

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