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

  • Paul A. David
  • Bronwyn H. Hall

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. Econometric studies in this area report 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 public R&D expenditure, but the necessary theoretical framework within which the empirical results can be interpreted is seldom provided. 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.

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File URL: http://www.nber.org/papers/w7538.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7538.

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Date of creation: Feb 2000
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Publication status: published as Research Policy, Vol. 29 (June 2000).
Handle: RePEc:nbr:nberwo:7538
Note: PR
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  1. Cowan, Robin & David, Paul A & Foray, Dominique, 2000. "The Explicit Economics of Knowledge Codification and Tacitness," Industrial and Corporate Change, Oxford University Press, vol. 9(2), pages 211-53, June.
  2. Diamond, Arthur Jr., 2003. "Edwin Mansfield's contributions to the economics of technology," Research Policy, Elsevier, vol. 32(9), pages 1607-1617, October.
  3. Paul A. David, 2005. "FROM MARKET MAGIC TO CALYPSO SCIENCE POLICY A Review of Terence Kealey's The Economic Laws of Scientific Research," Development and Comp Systems 0502013, EconWPA.
  4. Charles I. Jones & John C. Williams, 1998. "Measuring The Social Return To R&D," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1119-1135, November.
  5. 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.
  6. Paula E. Stephan, 1996. "The Economics of Science," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1199-1235, September.
  7. Goolsbee, Austan, 1998. "Does Government R&D Policy Mainly Benefit Scientists and Engineers?," American Economic Review, American Economic Association, vol. 88(2), pages 298-302, May.
  8. Paul A. David, 1999. "The Political Economy of Public Science," Working Papers 99022, Stanford University, Department of Economics.
  9. 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.
  10. Bruno Van Pottelsberghe & Dominique Guellec, 2001. "The effectiveness of public policies in R&D," ULB Institutional Repository 2013/6225, ULB -- Universite Libre de Bruxelles.
  11. 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.
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