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Science and Innovation

Rethinking the Rationales for Funding and Governance

Edited by Aldo Geuna, Ammon J. Salter and W. Edward Steinmueller

This book re-examines the rationale for public policy, concluding that the prevailing ‘public knowledge’ model is evolving towards a networked or distributed model of knowledge production and use in which public and private institutions play complementary roles. It provides a set of tools and models to assess the impact of the new network model of funding and governance, and argues that governments need to adapt their funding and administrative priorities and procedures to support the emergence and healthy growth of research networks. The book goes on to explain that interdependencies and complementarities in the production and distribution of knowledge require a new and more contextual, flexible and complex approach to government funding, monitoring and assessment.
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Chapter 10: Funding Basic Research: When is Public Finance Preferable to Attainable ‘Club Goods’ Solutions?

G.M. Peter Swann


10. Funding basic research: when is public finance preferable to attainable ‘club goods’ solutions? G.M. Peter Swann 1 INTRODUCTION One of the most common arguments for public funding of basic research focuses on externalities. The funder of basic research cannot capture all the benefits from that research and some of these spill over to others. As a consequence, there is a risk that some socially viable projects (where social benefit exceeds cost) will not be funded, because the cost exceeds the private benefit to the funder. Public funding aims to fill that gap. Few economists have questioned this justification for public funding of basic research, because basic research is seen as one of the purest forms of public good. It is recognized, of course, that the club goods solution has a role for the funding of some non-basic research activity. In those areas a common ‘club goods’ response to the externality argument is to ask, why can the diverse beneficiaries from a project not form a club to fund it? If a sufficient number join together such that their joint benefits exceed cost then the socially viable project will be funded – even if the funding club does not capture all the benefits. In short, the club solution is to internalize (at least some of) the externalities. The club goods approach seems to be attracting ever more interest in policy circles as an alternative to public funding in some non-basic areas – for example,...

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