Absorptive capacity, the allocation of scientists, and firms' research productivity

Andrea, Canidio (2010): Absorptive capacity, the allocation of scientists, and firms' research productivity.

Abstract

Empirical evidence shows that R&D productivity decreases with firm size. I provide an explanation to this fact by developing a model of science production where heterogeneous researchers are endogenously allocated to different firms. The main assumption is that firms invest in research to increase their absorptive capacity: the ability to use and understand knowledge produced outside of the firm. Firms create absorptive capacity by building labs and hiring researchers in a competitive market. Because of externalities, firms underinvest in labs. More interestingly, researchers and labs are substitutes in the revenue function, even though they are complements in the research production function. As a consequence, the greater the investment in research, the lower the productivity of the researcher working for the firm. This generates a novel form of inefficiency: for any given investment, the allocation of researchers to firms is non optimal.

• Item Type: MPRA Paper
• Language: English
• Keywords: Knowledge, R&D Productivity, Organization of Scientific Research, Externality, Absorptive Capacity, Matching with Investment.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure

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