Past research has recognized that both demand and capability influence the allocation of R&D resources. Scholars have had an easier time getting a grip on demand than on capability. While it has been recognized that knowledge is an important part of capability, to date, formalization of knowledge and its role in R&D activity has been unsatisfactory. This paper models the role of knowledge in R&D. Various sources of such knowledge are considered. The model throws a different light on analyses that employ a “knowledge capital stock, †and also illuminates the dual private and public nature of technological knowledge.
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Richard R. Nelson (1982) studied this question.