Product Development Corporations and State Economic Development

Product development corporations have been established by eight states for the purpose of promoting the development of innovative sectors of the economy by augmenting the supply of risk capital. They operate by providing a grant to a firm to finance the design, testing, and commercialization of a new product, in return for royalties on sales of the product. An evaluation of the oldest of these programs, the Connecticut Product Development Corporation (now in its twelfth year), reveals that the public corporation has yet to become self-sustaining. Simulations indicate that the rate of royalty returns will have to increase significantly if the CPDC is to turn a profit for the state. While profitability may be too narrow a criterion for evaluating product development corporations, there are grounds to be skeptical that the CPDC or similar institutions will generate true public benefits (beyond monetary returns) sufficient to justify a long-term taxpayer subsidy.