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The Returns to Physical Capital in Knowledge Production: Evidence from Lab Disasters

Baruffaldi, Stefano Horst; Gaessler, Fabian (2021). The Returns to Physical Capital in Knowledge Production: Evidence from Lab Disasters, Max Planck Institute for Innovation & Competition Research Paper No. 21-19.

We establish the importance of physical capital in knowledge production. To this end, we exploit adverse events (explosions, fires, floods, etc.) at research institutions as exogenous physical capital shocks. Scientists experience a substantial and persistent reduction in research output if they lose specialized physical capital, that is, equipment and material they created over time for a particular research purpose. In contrast, they quickly recover if they only lose generic physical capital. Affected scientists in older laboratories, which presumably lose more obsolete physical capital, are more likely to change their direction of research and recover in scientific productivity. These findings suggest that a scientist's investments into their own physical capital yield lasting returns but also create path dependence in relation to research direction.

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