Knowledge Spillovers, Collective Entrepreneurship, & Economic Growth: The Role of Universities

This paper develops a formal context for understanding the role that universities play in facilitating the transmission of knowledge to private-sector firms so as to generate economic growth. To the degree the university seeks to act as a complement to private-sector firm-with-firm collaborative R&D, it needs to structure its programs so that firm revenues increase and firm R&D costs, if they rise at all (and a fall would be better), rise by a smaller proportion than revenues increase. Such a structure is consistent with university interests but requires that the university be subsidized. In the absence of such support, it is unlikely that the university will have much success. The university will have to cover its costs through a fee charged to participating firms, and that will result in university being seen as a substitute rather than a complement to firm-with-firm collaborative R&D. However, while there may be good reasons why such subsidization is rational from an efficiency perspective, such arguments, as current governmental fiscal pressures in the US and other countries reveal, may not be persuasive with legislatures. Hence, there is a fundamental policy tension.