R&D Capital and the Idea Production Function

We supplement the ‘Idea Production Function’ (IPF) with measures of R&D capital. We construct the R&D capital stock in the US, and estimate the IPF with patent applications as R&D output, allowing for a flexible treatment of R&D productivity (over 1968-2019). The estimated substitution elasticity between R&D inputs is 0.7 - 0.8. Hence R&D capital is an essential factor in producing ideas, complementary to R&D labor. There is a positive trend in R&D labor productivity ( 1%) and cyclical variation of R&D capital productivity. Instead of ‘ideas getting harder to find’, there is a scarcity of R&D capital needed to find them