Wider economic impacts from R&D investments Arild HervikResearch seminar

R&D project over 17 years budget 25 mill from RCN We deliver every year a report to RCN and a lot of seminars based on the analysis We deliver information to help the government leading expert committees We deliver based on our experience to other institutions like Vinnova in Sweden We deliver by participating in the research system

The important elements in R&D policy in most countries Fiscal incentives like the tax incentive system SkatteFUNN Direct financial support to firms or R&D institutes as strategic user driven programs Imperfect capital markets and IN support to innovative start ups Increased quality in basic university research to support innovative firms

Theoretical perspective Private companies underinvest in R&D because of market imperfections Outcome from R&D only partially appropriated by innovation firm and the rest is spill over to society - lack of incentives Imperfections in capital markets because of uncertainties and asymmetric information for innovative start ups - lack of means All countries strong focus on R&D policy

Michael Peneder (2008). The problem of private underinvestment in innovation: a policy mindmap, Technovation

Measuring wider economic impacts from user driven R&D programs A cost benefit approach from the Mansfield tradition The conterfactual problem and input -, output and behavioural additionality important Economic benefits for R&D company estimated Spill over effects in focus Measurement problems and add a system of other indicators

A module based database The selection module with systematic data from all projects and a final score 1-7 Ex ante interviews and a company survey database Ex post interviews 3 years after start up Long run interviews 8 years after start up Output indicators like patents, scientific articles, new firms, new products etc

Firm 1 R&D New Knowledge Held by Firm 1 Better Products; Lower Costs Product Market Competition New Knowledge Released by Firm 1 Other Firm’s Knowledge Better Products; Lower Costs Other Product Markets Firm 1 Profits Other Firm’s Profit Customer Benefit Other Firm’s Profit Customer Benefit Pure Market Spillover Plus Pure Knowledge Spillover Plus Interaction of the Two Economic Benefit Patents Publications Other Private Return Spillover Gap Social Return

Social rate of return (profits of all firms plus benefits to consumers) Private rate of return (profits of innovating firms) Poor prospects Marginal commercial prospects Good commercial prospects A B C D

Socioeconomic costs and benefits – indicator set Indicators for success within the companies The conterfactual problem and indicators for additionality Indicators for private economic costs/benefits Indicators for eksternal effects Estimation of socioeconomic benefits

Plans for commercialization of R&D projects – long te rm

Calculated net present values based on estimates from companies – long term

Socioeconomic effects from 709 projects (1996 – 2005)

Research Council of Norway Supported firms 8 bn NOK (including RCN support) Competence building Grants 2.5 bn NOK Patents Publications PhDs Other Innovation of products and processes Market competition Profit in firms undertaking user-driven R&D Population of 820 user-driven innovation projects Indicators from long-term assessment; four years after project completion Great significance in 65 % of the projects Pecuniary effects * Other firm’s knowledge Innovation Other product markets Other firm’s profit Customer benefits Expected NPV 14.8 bn NOK in 41 % of the projects Significant in 30 % of the projects * Customer benefits; including cost savings and quality improvements for corporate customers, and consumer benefits Realized 900 innovations in 65 % of the projects Significant in 40 % of the projects Knowledge spillover Other firm’s profit (Percentages based on interviews of 465 projects in the population)

The indicator approach The private profit compensates for all the projects that never reached the market A few projects (20) have 80% of the profit Project owners estimates market and knowledge spillovers. The indicator approach do not result in one figure. It gives an indication that the portfolio have a positive socioeconomic effect in a broad context.

Firms estimation of project success – ex post

Success ex post - regression Dependent variable Total estimation of project success Number of observations725 Non missing observations517 Missing observations208 Adjusted R20,7467 Coefficientt-valuePr > |t| Constant term-0,29-1,650,0997 Co-operation and network building0,3011,21< 0,0001 Competence building0,266,83< 0,0001 Technological results0,279,5< 0,0001 Financial performance0,2311,71< 0,

Project impact on firm development ex post - regression Dependent variable Total estimation of project impact Number of observations725 Non missing observations554 Missing observations171 Adjusted R20,8564 Coefficientt-valuePr > |t| Constant term0,313,400,0007 Co-operation and network building0,157,56< 0,0001 Competence building0,3211,52< 0,0001 Technological results0,2510,78< 0,0001 Financial performance0,2514,39< 0,

Firms satisfaction with performance and results long term R&D (red) and commercialization (blue)

Research level of projects – firms judgement

External effects (PhD, publications and patents) - long term Long term measurements of R&D-projects, terminated (n=102) PhD (#) Publications w/referee (#)Patent (#) Expectations - PROVIS27-- Reports from firms (tellekanter) at closing Reports from firms 4 yrs later (+36 applications)

Assessment of socioeconomic benefits – long term – externalities – market spillovers

Research findings and know-how from the project known to others – long term – knowledge spillover

The R&D projects importance to company development (long term – 8 yrs)

Assessment of input additionality – start up

Asssessment of behavioural additionality – start up