PRIME Series on Research and Innovation Policy in Europe
Edited by Massimo G. Colombo, Luca Grilli, Lucia Piscitello and Cristina Rossi-Lamastra
Chapter 3: Econometric Evaluation of Public Policies for Science and Innovation: A Brief Guide to Practice
Luca Grilli and Samuele Murtinu INTRODUCTION It is widely documented that the private rate of return to innovation activities may be lower than the social rate. This divergence leads to a socially suboptimal rate of investment in science and innovation (Guellec and van Pottelsberghe 2003). Indeed, most OECD countries have tried to delegate public resources directly to Research and Development (R&D) projects that are believed to boost the dynamic efficiency of the economic system and thus lead to a higher level of social welfare. More specifically, governments fund programmes supporting basic scientific research and large-scale R&D projects aimed at reaching fundamental objectives (for example, defence, transport, aerospace, health or environmental concerns). Public support programmes often involve pre-competitive R&D with the goal of encouraging large spillover effects (for example, through firms’ alliances and research consortia) and commercial R&D in order to solve possible market failures and increase innovation rates at the industrial level. However, there is little consensus among economists about the desirability of these public support measures, in particular those directed towards firms. There are at least two main reasons why these latter public programmes may be ineffective from a social point of view. First, public money may crowd out private financing. In other words, there is no net increase in research investments, even if public resources are used productively and not wasted by the supported firms. More specifically, governments attempt to increase total R&D expenditures through the provision of public R&D funding to...
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