Absorptive capacity, R&D spillovers, and public policy

Abstract

Empirical evidence strongly suggests that R&D increases a firm's "absorptive capacity" (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive capacity process and show that costly absorption both raises the effectiveness of own R&D and lowers the effective spillover coefficient. This weakens the case for encouraging research joint ventures, even if there is complete information sharing between members. It also implies an additional strategic pay-off to policies that raise the level of extra-industry knowledge.

Transboundary Pollution and Absorptive Capacity

“…She showed that, when spillovers of information are endogenized, non-cooperative firms never disclose any of their information, whereas they will always fully share their information when they cooperate in R&D. Kamien and Zang (2000) modeled a firm's effective R&D level that reflects how both its R&D approach (firm specific or general) and R&D level influence its absorptive capacity. Leahy and Neary (2007) specified a general model of the absorptive capacity process and showed that costly absorption raises the effectiveness of own R&D and lowers the effective spillover coefficient thus weakening the case for encouraging research joint venture (RJV) even if there is complete information sharing between firms. Milliou (2009) showed that the lack of full appropriability can lead to an increase in R&D investments.…”

Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies

“…If we were able to do so, then we would have compared the socially optimal level of original research in the presence and absence of absorptive capacity. This comparison is worth considering in a future investigation since one reason evoked by the absorptive capacity literature is that absorptive capacity may increase the R&D level and sometimes plays a better role than RJVs (e.g., Leahy and Neary (2007)). …”

Absorptive capacity, efficiency effect and competitors’ spillovers

“…This theoretical argument has been so successful that many scholars have been and continue to be persuaded that the absorptive capacity effect is always dominant, forgetting its possible weakness, especially in terms of suppliers' or competitors' incoming knowledge (Cohen and Levinthal 1989). In this respect, this persistent belief is supported by robust theoretical results focused on competitors (See Leahy and Neary 2007), and also by an extensive econometric literature on the role of intra-industry spillovers which is, however, not able to identify clearly the balance between the efficiency effect and the absorptive capacity effect. We propose to illustrate the difficulties by surveying the three different empirical methods implemented to identify the deterring effect of competitors' incoming knowledge on R&D.…”

“…s 2 is defined as above; compared with w, the x matrix includes an additional variable, an R&D cooperation dummy (R&D COOP). The introduction of this latter is carried out in order to control for the different roles played by internalized and non-internalized incoming spillovers (See Belderbos et al 2004;Leahy and Neary 2007). The variable is, however, not observed for non-innovative firms (see Lhuillery and Pfister 2009 for related discussion on this problem) and therefore cannot be introduced into Eq.…”