Study  |  10/01/2021

What Do Lab Disasters Tell Us about the Importance of Physical Capital in Knowledge Production?

Prior research has largely focused on the important role of human capital in the production of knowledge. Now, a new study investigates the role of physical capital in knowledge production using lab disasters, like explosions, fires, and floods, as a natural experiment. The results provide important insights for science and innovation policy.

The authors establish the importance of physical capital in knowledge production. To this end, they 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 who 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.

The study suggests that science and innovation policy should give more consideration to the role of physical capital in knowledge production.

Directly to the publication by
Stefano Baruffaldi and Fabian Gaessler
The Returns to Physical Capital in Knowledge Production: Evidence from Lab Disasters
Max Planck Institute for Innovation & Competition Research Paper No. 21-19