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?
Hmm that's a good point that I hadn't considered, IP law is definitely a subsidy and a pretty substantial one. I still think the arguments about the high average returns to R&D suggest that there is still value left on the table that governments aren't taking because of an apathy for temporal externalities.
The biggest of all is the technology transfers with exclusivity from the government through the Bayh-Dole patent law regime. Perhaps one of the greatest legal perversions in the history of human civilization...
with the R&D tax credit back in the news with the negotiations around the childcare tax credit enlargement, I wonder if Mr. Lund or Mr. Tabarrok have recommendations about what to read about best practices for designing R&D subsidies to avoid "gaming"
I am also curious where you guys think middle-income and low-income countries should concentrate public R&D spending or encourage private enterprise to spend on R&D, especially when they have few firms near the cutting edge or maybe even few firms participating in the highest-tech, highest-value-added industries and product categories
It's a hard question to answer. Generally, the private sector will underinvest in R&D on its own and will focus on applied R&D, not basic R&D or "Pasteur's Quadrant." There is probably a role that government should play, but it's hard for the government to give out money in the form of subsidies or tax breaks without some level of gaming the system as well. I have an idea for a prize plus social bonus system that may work, will publish in a week or so.
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.
Yes, great example! I was thinking about exactly this but couldn't remember the name.
This is a good example of more than the lack of incentive for R&D but the actual dis-incentive for R&D since it comes with upfront financial and reputational costs and usually long term beneifts.
"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?
On the one hand, most people and GDP exist outside of the US. On the other hand, lots of those people and that GDP doesn't grow very much and the GDP that does grow due to US technology trades with us. Low confidence on an exact number but I'd guess at least 10x more of the value is captured so maybe 20%
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.
But due to the perversions of the Bayh-Dole patent law regime the government typically transfers the products of its own R&D to typically a single, sometimes and handful, firm. And due to the fact that firms in America are not compelled to license if they don't want to, these firms often never do so. And even worse, the recipient firm will sometimes never use the product of that R&D and will deny anyone else the right to either; despite the fact that Bayh-Dole grants the government “march in” rights which they can use to prevent, in practice there is no known case of them ever having done so.
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).
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?
Hmm that's a good point that I hadn't considered, IP law is definitely a subsidy and a pretty substantial one. I still think the arguments about the high average returns to R&D suggest that there is still value left on the table that governments aren't taking because of an apathy for temporal externalities.
Also various tax credits for R&D, also a bunch of US gov spending on R&D is through department of defense (not sure if that's counted here)
Tax credits aren't but DoD is
The biggest of all is the technology transfers with exclusivity from the government through the Bayh-Dole patent law regime. Perhaps one of the greatest legal perversions in the history of human civilization...
https://theintercept.com/2021/08/29/bayh-dole-act-public-science-patents/
with the R&D tax credit back in the news with the negotiations around the childcare tax credit enlargement, I wonder if Mr. Lund or Mr. Tabarrok have recommendations about what to read about best practices for designing R&D subsidies to avoid "gaming"
I am also curious where you guys think middle-income and low-income countries should concentrate public R&D spending or encourage private enterprise to spend on R&D, especially when they have few firms near the cutting edge or maybe even few firms participating in the highest-tech, highest-value-added industries and product categories
It's a hard question to answer. Generally, the private sector will underinvest in R&D on its own and will focus on applied R&D, not basic R&D or "Pasteur's Quadrant." There is probably a role that government should play, but it's hard for the government to give out money in the form of subsidies or tax breaks without some level of gaming the system as well. I have an idea for a prize plus social bonus system that may work, will publish in a week or so.
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?
Great way to put it!
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.
Yes, great example! I was thinking about exactly this but couldn't remember the name.
This is a good example of more than the lack of incentive for R&D but the actual dis-incentive for R&D since it comes with upfront financial and reputational costs and usually long term beneifts.
"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?
On the one hand, most people and GDP exist outside of the US. On the other hand, lots of those people and that GDP doesn't grow very much and the GDP that does grow due to US technology trades with us. Low confidence on an exact number but I'd guess at least 10x more of the value is captured so maybe 20%
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.
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.
But due to the perversions of the Bayh-Dole patent law regime the government typically transfers the products of its own R&D to typically a single, sometimes and handful, firm. And due to the fact that firms in America are not compelled to license if they don't want to, these firms often never do so. And even worse, the recipient firm will sometimes never use the product of that R&D and will deny anyone else the right to either; despite the fact that Bayh-Dole grants the government “march in” rights which they can use to prevent, in practice there is no known case of them ever having done so.
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.
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).