Lecture 23 07 Final - EEP 143 Lecture 23 Public Production...

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EEP 143 Lecture 23 Public Production and Support of R&D
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How can government move research to the optimal level? There are several ways: 1. Internalize externality Merge firms Patent system, other IPRs Farmer co-ops for research (Hawaii pineapples, South American rice research) 2. Subsidize research Australian market assessments for ag. research, matched by govt. Tax deduction or tax credit 1. Public provision of research 2. Public funding of research 3. Encourage private appropriation of public- funded research for further development 4. Encourage private supplemental support of or collaboration in public/nonprofit research
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How can government move research to the optimal level? There are several ways: 1. Internalize externality 2. Subsidize research 1. Public provision of research 2. Public funding of research 3. Encourageprivate appropriation of public-funded research for further development 4. Encourage private supplemental support of or collaboration in public/nonprofit research
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3. Public Provision of Research
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Federal R&D federal government accounts for 30% of total funds that go to R&D produces only 8% of R&D. So it funds almost four times more R&D than it actually does Of course, private sector accounts for most of the R&D: It spends 63% of total R&D expenditures and engages in 72% of total R&D In contrast with the private sector, universities have been relying more and more on federal funds
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Federal Funding of R&D 1. Basic Research NSF, NIH, energy (e.g. JBEI), and space science (What goes on in that building in Strawberry canyon?) military and space applications: NASA, Dept. of Defense (huge: see next slide!) research in applied technology areas perceived to be of national importance in health, energy, and agriculture EPA, Dept. of Agriculture/ERS . commercialization and adoption programs/ demonstration programs : SBIR, ATP, CRADA cost-sharing private R&D in commercial areas: Sematech ATP (Advanced Technology Projects)
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Composition of Federal R&D Spending 1953-2003 0 10 20 30 40 50 60 70 80 90 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 Year Billions of 1996 dollars Defense related Space related Civilian related © B.H. Hall 2004
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3’. Public provision of civilian research Agriculture as major example Average rates of return are high What are returns? What are costs? How are rates of return calculated?
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Calculating rates of return What are returns? What are costs? You should be able to answer these questions, but be careful!
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How are rates of return calculated? Use Benefit-Cost ratio? Popular in Army Corps of Engineers water projects Can this be manipulated? Try redefining half the costs as negative benefits, subtract from costs, subtract from benefits Question: “If you are an economic consultant, what is 2+2?” 0 0 (1 ) ) T t t t T t t t B PV of benefits r C PV of Costs r = = + = +
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Benefit cost ratio manipulation Say Benefits = 5, Cost =4 Benefit/Cost = 5/4 = 1.25 Not high enough?
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This note was uploaded on 08/01/2008 for the course ECON 143 taught by Professor Wright during the Fall '07 term at University of California, Berkeley.

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Lecture 23 07 Final - EEP 143 Lecture 23 Public Production...

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