Evaluation and Learning in R&D Investment

56 Pages Posted: 31 May 2023 Last revised: 1 Jul 2023

See all articles by Alexander P. Frankel

Alexander P. Frankel

Chicago Booth

Joshua Krieger

Harvard University - Business School (HBS)

Danielle Li

Massachusetts Institute of Technology (MIT)

Dimitris Papanikolaou

Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: May 2023

Abstract

We examine the role of spillover learning in shaping the value of exploratory versus incremental R&D. Using data from drug development, we show that novel drug candidates generate more knowledge spillovers than incremental ones. Despite being less likely to reach regulatory approval, they are more likely to inspire subsequent successful drugs. We introduce a model where firms are better able to evaluate the viability of incremental drugs, but where investing in novel drugs helps firms learn about future projects. Firms appear to put more value on evaluation versus learning, and those patterns are in-part driven by the appropriability of spillovers.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Frankel, Alexander P. and Krieger, Joshua and Li, Danielle and Papanikolaou, Dimitris, Evaluation and Learning in R&D Investment (May 2023). NBER Working Paper No. w31290, Available at SSRN: https://ssrn.com/abstract=4461640

Alexander P. Frankel (Contact Author)

Chicago Booth ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Joshua Krieger

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-5864 (Phone)

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facid=951435

Danielle Li

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Dimitris Papanikolaou

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
225
PlumX Metrics