2023
Working Paper
HBS Working Paper Series

Evaluation and Learning in R&D Investment

By: Alexander P. Frankel, Joshua L. Krieger, Danielle Li and Dimitris Papanikolaou

Language:English
| Pages:58

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

Research and Development; Forecasting and Prediction; Valuation; Pharmaceutical Industry

Citation

Frankel, Alexander P., Joshua L. Krieger, Danielle Li, and Dimitris Papanikolaou. "Evaluation and Learning in R&D Investment." Harvard Business School Working Paper, No. 23-074, May 2023. (NBER Working Paper Series, No. 31290, May 2023.)