16 Comments
Nov 15, 2023Liked by Maxwell Tabarrok

Does this include the "subsidy" created by the existence if IP law and protections? Governments can certainly create more incentives to conduct R&D, without additional spending, by simply enforcing patent law.

What I grapple with a great deal at Risk & Progress is how do we best incentivize innovation? The government can dump money via grants and tax credits, but grants are subject to bureaucratic whims and tax credits can be gamed by the private sector. Patents are a double edged sword and prizes require the government to predict which innovations society needs (and value them). None of these options seem to work all that well at all.

Kremer's patent auctions and buyouts seem like a fun thought experiment, but not workable in reality. Do you have any thoughts, assuming that the premise is correct, that we need more R&D, how we can incentivize this in the most effective way possible?

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Nov 15, 2023Liked by Maxwell Tabarrok

Private companies do have insufficient incentives for R+D. But at least they have *some*.

Governments have even worse incentives for R+D. What election has government R+D spending ever been relevant for?

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Nov 17, 2023Liked by Maxwell Tabarrok

I'll give you a quick answer to why the US doesn't spend enough on R&D: William Proxmire: https://en.wikipedia.org/wiki/Golden_Fleece_Award. He often picked on basic research that was easy for non-specialists to make fun of. Gave the whole notion a bad rap.

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"for large economies at the frontier of technological growth, like the US, they internalize a large chunk of the value from R&D, much more than 2%." What's your guess?

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China invests 2.5% of its $32 trillion GDP in R&D.

The US invests 0.8% of its $22 trillion GDP in R&D.

China's ROI is higher, too, because engineers make the final decisions.

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Science spending is a tiny fraction of the overall budget. It's consistently been blown out of the water by stuff like welfare many times over. People are pretty short-term oriented in most ways, so even getting a paltry amount for science is a tough order.

Science can be roughly broken into two types: basic science, and R&D. R&D of products has a plausible return on investment so it's not hard to entice corporations to do it of their own accord. This isn't true of basic science, which would have a much longer path to being monetizable. However, basic science is absolutely essential for future generations of R&D projects. As such, it makes sense to me that if the government is funding anything, it should be funding the basic science done by universities and then let corporations do R&D with perhaps some tax breaks to further encourage it. The world already works like this.

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China invests $1 trillion in R&D each year. That's 2.5% of their $34 Tn. GDP.

We invest $215 billion. That's 0.8% of our GDP.

The same ratio holds for private companies. Huawei invests more in R&D annually than the CHIPS Act.

That's one reason they're ahead of us.

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Prizes feel like an underrated mechanism.

Why do you think they're not used more? Prizes with well-defined objective criteria feel like a great way to get more public and private R&D without picking winners and losers (and instead just rewarding the winners).

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