SCIENCE‐BASED R&D IN SCHUMPETERIAN GROWTH
| Author | Silvia Galli,Guido Cozzi |
| DOI | http://doi.org/10.1111/j.1467-9485.2009.00494.x |
| Published date | 01 September 2009 |
| Date | 01 September 2009 |
SCIENCE-BASED R&D IN
SCHUMPETERIAN GROWTH
Guido Cozzi
n
and Silvia Galli
n
Abstract
Firm success is often associated with the development of better products. Private
firms undertake applied R&D seeking market advantage, by capitalizing on the
freely accessible results of basic research. But unpatentable basic research often
fails to address applied R&D open problems. What is the role of the incentives in
improving the innovative performance of an economy by matching partially
motivated public researchers to their mission? Sometimes government-funded
research projects are mission-directed, and yet in many cases the public sector
academics indulge in carrier-driven research. An innovation system where, as in the
United States, basic research is also driven by patents implicitly sets an ex-post
incentive to the researchers guided by invisible hand. For a public innovation
system – like the European one – designing an incentive scheme to motivate public
researchers is of key importance for fostering the performance of the economic
system. This paper extends the Schumpeterian multisector growth model with
vertical innovation by highlighting a link between the degree of ‘targetness’ of
public research and aggregate innovation. A positive effect of social capital is also
proved.
I Intro ductio n
We are in a period of fundamental reconsideration of US science and
technology policy. The end of the Cold War, the changing nature of US
economic competitiveness, and the increasing direct involvement of the
Congress in science policy have led to a lack of stability in goals and
philosophy. The roles of government, industry, and academia are being
examined in a fundamental way.
(Charles Vest, President of MIT, MIT, 1995, p. 2)
Through the creation of a patent system, policy makers always tried to create a
protected ideal place for the creation and the transmission of a public good –
new knowledge and technology. Governments assign to the patent systems the
main functions of incentivizing the production of new technologies, of informing
n
University of Glasgow
Scottish Journal of Political Economy, Vol. 56, No. 4, September 2009
r2009 The Authors
Journal compilation r2009 Scottish Economic Society. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
474
society about their availability, and of creating a market for such new
technologies. When this regulated market works properly – even at the cost of
creating some additional distortions – then consumers enjoy the benefits of the
resulting innovative output produced in the economy. In this sense, it has often
been stressed how, among the different instrument for protecting intellectual
property, patents constitute the most market-oriented ones (Guellec, 2007).
Besides the two functions traditionally assigned to the patent system –
incentivizing and diffusing innovations in the economy – stands out a third
political task: orienting R&D activity towards the consumers’ needs.
1
We will
focus on this in our paper, with special attention to the non-patentable aspects
of research.
Several studies – echoed by frequent industry leaders’ complaints – point out
an increasing complexity in the applied R&D activity (Kortum, 1993, 1997;
Segerstrom, 1998). If applied R&D – i.e. the private innovative arena – is
becoming increasingly more complicated, it may be crucial from a social point of
view to develop solid instruments of technological transfer from basic research.
Of course, a more and more difficult applied research also reveals a closer and
closer interconnectedness between applied and basic research: to produce new
medical treatment, it is crucial to have an improvement in the basic
understanding of the pathologies. A good ongoing interaction between basic
and applied R&D therefore implies that the scientists’ awareness of the
importance of the allocation of their basic research efforts between the changing
open questions of applied science and technology could play a central role in
promoting progress.
A lot of basic research is public, particularly so in Europe and Asia, less so in
the United States after the beginning of the 1980s. The efficient provision of
public services, in the case publicly driven R&D, necessarily means the ability of
a government-led public innovation system to generate more innovations well
targeted from the society point of view. Hence, the need to theoretically explore
the dimension of applied vs. fundamental R&D in a macroeconomic framework.
In this paper, we develop a variant of Cozzi and Galli (2008) R&D-driven
growth model, with the explicit aim of analysing the effects on equilibrium
innovation of simple monetary and non-monetary incentive schemes to the basic
researcher in the public system, when basic research outcomes are not
patentable.
The structure of the model presented here, as in Cozzi and Galli (2008),
envisages basic and applied R&D in all sectors of the economy. Within each
industry, firms are distinguished by the quality of the final good they produce.
When the state-of-the-art quality product in an industry o2½0;1is jtðoÞ,
research firms compete in order to learn how to produce the jtðoÞþ1st quality
product. This learning process involves a two-stage innovation path; thus, first,
an R&D unit catches a glimpse of innovation through the jtðoÞþ1
2th inventive
1
This is the utilitarian approach to the economics of science-based innovation: to ask if and
in what extent publicly employed scientists provide their customers (i.e. all the consumers) with
more or less satisfactory answers to their real needs.
SCIENCE-BASED R&D IN SCHUMPETERIAN GROWTH 475
r2009 The Authors
Journal compilation r2009 Scottish Economic Society
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