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Heart of Darkness: Public-Private Interactions Inside the R&D Black Box

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  • Paul A. David
  • Bronwyn H. Hall

Abstract

Revised: March 24, 1999

The original draft of this paper was presented to the American Economic Association Meetings session "In Honor of Edwin Mansfield," held in New York, N.Y., on January 5, 1999.

This paper is a first step toward closing the analytical gap in the extensive literature on the results of interactions between public and private R&D expenditures, and their joint effects on the economy. A survey focusing on econometric studies in this area reveals a plethora of sometimes confusing and frequently contradictory estimates of the response of company financed R&D to changes in the level and nature of this category of public expenditures. Yet, a theoretical framework seldom is provided within which the empirical results are to be interpreted. Some such structure is necessary, in view of the multiple channels through which public research can affect private R&D performance, especially as not all the effects flow in the same direction. A major cause of "inconsistencies" in the empirical literature is the failure to recognize key differences among the various policy "experiments" being considered depending upon the economy in which they are embedded, and the type of public sector R&D spending that is contemplated. Using a simple, stylized structural model, we identify the main channels of impact of public R&D. We thus can characterize the various effects, distinguishing between short-run and long-run impacts that would show up in simple regression analyses of nominal public and private R&D expenditure variables. Within the context of our simple model it is possible to offer interpretations that shed light on recent cross-section and panel data findings at both high (i.e. national) and low (specific technology area) levels of aggregation.

JEL Classification: H41, H42, O31, O38

Keywords: R&D, public goods, crowding out, spillovers, supply of scientists and engineers.

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 99024.

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Handle: RePEc:wop:stanec:99024

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References

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  1. David, P. A., 1997. "From market magic to calypso science policy a review of Terence Kealey's The economic laws of scientific research," Research Policy, Elsevier, vol. 26(2), pages 229-255, May.
  2. Arthur M. Diamond, 1999. "Does Federal Funding "Crowd In" Private Funding Of Science?," Contemporary Economic Policy, Western Economic Association International, vol. 17(4), pages 423-431, October.
  3. Cowan,Robin & David,Paul & Foray,Dominique, 1999. "The Explicit Economics of Knowledge Codification and Tacitness," Research Memoranda 025, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
  4. Charles I. Jones & John C. Williams, 1997. "Measuring the social return to R&D," Finance and Economics Discussion Series 1997-12, Board of Governors of the Federal Reserve System (U.S.).
  5. Austan Goolsbee, 1998. "Does Government R&D Policy Mainly Benefit Scientists and Engineers?," NBER Working Papers 6532, National Bureau of Economic Research, Inc.
  6. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  7. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  8. Bruno Van Pottelsberghe & Dominique Guellec, 2001. "The effectiveness of public policies in R&D," ULB Institutional Repository 2013/6225, ULB -- Universite Libre de Bruxelles.
  9. Paula E. Stephan, 1996. "The Economics of Science," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1199-1235, September.
  10. Diamond, Arthur Jr., 2003. "Edwin Mansfield's contributions to the economics of technology," Research Policy, Elsevier, vol. 32(9), pages 1607-1617, October.
  11. Paul A. David, 1999. "The Political Economy of Public Science," Working Papers 99022, Stanford University, Department of Economics.
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Cited by:
  1. Paul A. David & Bronwyn H. Hall & Andrew A. Toole, 1999. "Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence," NBER Working Papers 7373, National Bureau of Economic Research, Inc.
  2. Bruno Van Pottelsberghe & Dominique Guellec, 2003. "The impact of public R&D expenditure on business R&D," ULB Institutional Repository 2013/6213, ULB -- Universite Libre de Bruxelles.
  3. Ben Zina, Tarek & Ben Zina, Naceur, 2006. "Complementarity or substitutability between private and public investment in R&D: An empirical study," MPRA Paper 3929, University Library of Munich, Germany, revised 28 Jan 2007.
  4. Daniel Chudnovsky & Andrés López & Martín Rossi & Diego Ubfal, 2006. "Evaluating A Program of Public Funding of Private Innovation Activities. An Econometric Study of FONTAR in Argentina," OVE Working Papers 1606, Inter-American Development Bank, Office of Evaluation and Oversight (OVE).

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