1. © Suzanne Scotchmer from Innovation and Incentives Public-Private Interface Who Funds R&D? Is it the private sector that matters? Which countries spend more on R&D? How much money does the government give the private sector for R&D? Universities? How much money does the private sector give to universities? How much money goes for defense-related R&D? What is the funding for? Figure 4-33: Government R&D support by socioeconomic objectives, G-8 countries

2. © Suzanne Scotchmer from Innovation and Incentives

3. Who pays for R&D? Dark blue = public, Light blue=private

4. © Suzanne Scotchmer from Innovation and Incentives

6. Top: US Funding to industry. Bottom: US Funding to universities

7. © Suzanne Scotchmer from Innovation and Incentives

8. The government grant process: Funding Inventors instead of Inventions? Why might you expect it not to work? Free-riding, etc. Why does no one cheat? Self-selection and Funding: Value of ideas in period t: Discounted value of future grants: Invest if the value of cheating, c, is less than value of future grants (selects the high-fertility researchers)

9. © Suzanne Scotchmer from Innovation and Incentives Questions about grants: What if you are a high-cost researcher? What if you are a low-fertility (low-λ)? Will the government have to “over pay?”

10. © Suzanne Scotchmer from Innovation and Incentives New Hybrids: IP on government-sponsored research. Is there a rationale for granting IP on government-subsidized research? What is the argument against this? s=subsidy, m=firm matching requirement, v=value,  vT=profit cost, funds, profit