Working Paper: NBER ID: w31290
Authors: Alexander P. Frankel; Joshua L. Krieger; Danielle Li; Dimitris Papanikolaou
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.
Keywords: No keywords provided
JEL Codes: G11; L65; O31; O32; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| novel drug candidates (L65) | greater knowledge spillovers (O36) |
| incremental drugs (F12) | lower knowledge spillovers (O36) |
| novel drugs (L65) | future drug successes (L65) |
| investment in novel drugs (O32) | knowledge spillovers (O36) |
| evaluation of incremental drugs (C52) | immediate returns (G14) |
| selectivity in developing novel drugs (L65) | preference for incremental drugs (D11) |
| competitive pressures (L11) | selectivity in novel drug investment (G11) |
| investment in novel drugs (O32) | long-term learning opportunities (J24) |