Explain the results of pundit property rights on social and private rates of return.Identify three U.S. Government policies and explain just how they encourage innovation

A variety of different federal government policies can increase the incentives come innovate, including: guaranteeing pundit property rights, federal government assistance with the prices of research and development, and also cooperative study ventures in between universities and companies.

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Intellectual residential property Rights

How lengthy is Mickey Mouse protected from being copied?

Figure 1 illustrates how the total variety of patent applications filed with the U.S. Patent and Trademark Office, and the total number of patents granted, surged in the mid-1990s v the innovation of the Internet, and is still going solid today.


While patents administer an motivation to innovate by protecting the innovator, they room not perfect. For example:

Because patents space imperfect and do not use well to all situations, alternate methods of enhancing the price of return because that inventors of new technology are desirable. Few of these possible alternative policies are described in the following sections.

Policy #1: government Spending on Research and Development

If the personal sector does no have adequate incentive to carry out research and development, one opportunity is because that the federal government to fund such work directly. Federal government spending can provide direct financial support for study and advancement (R&D) done at colleges and also universities, nonprofit research study entities, and sometimes by personal firms, and also at government-run laboratories. While government spending on research study and breakthrough produces an innovation that is broadly accessible for firms to use, it expenses taxpayers money and also can sometimes be directed much more for political 보다 for clinical or financial reasons.

Visit the NASA website and also the USDA website to read about government research study that would certainly not take location where it left come firms because of the externalities.


The an initial column that Table 5 shows the resources of complete U.S. Security on research and also development; the 2nd column shows the total dollars the R&D funding by every source. The third column mirrors that, relative to the full amount that funding, 26% comes from the federal government, around 67% that R&D is excellent by industry, and less 보다 3% is excellent by universities and also colleges. (The percentages listed below do not include up to exactly 100% due to rounding.)

Sources of R&D FundingAmount ($ billions)Percent the the Total
Federal government$133.632%
Universities and colleges$12.53%
Nonfederal government$3.80.91%
Table 5. U.S. Study and breakthrough Expenditures, 2011. (Source: http://www.nsf.gov/statistics/infbrief/nsf13313/)

In the 1960s the federal government paid for around two-thirds that the nation’s R&D. End time, the U.S. Economic climate has involved rely much more heavily ~ above industry-funded R&D. The federal federal government has tried to focus its direct R&D safety on locations where exclusive firms room not together active. One challenge with straight government support of R&D is the it inevitably entails political decisions around which projects are worthy. The scientific inquiry of whether research study is worthwhile deserve to easily become entangled v considerations prefer the ar of the congressional ar in i beg your pardon the research resources is being spent.

Policy #2: taxation Breaks for Research and also Development

A complementary approach to sustaining R&D the does no involve the government’s nearby scrutiny of details projects is to provide firms a palliation in taxes depending upon how lot research and development they do. The federal government refers come this policy as the research and experimentation (R&E) tax credit. Follow to the Treasury Department: “. . . The R&E credit transaction is also a cost-effective policy for stimulating additional private sector investment. Many recent studies uncover that every dollar of foregone taxes revenue with the R&E taxes Credit reasons firms come invest at least a disagreement in R&D, v some researches finding a advantage to price ratio the 2 or 2.96.”

Visit this website for an ext information on just how the R&E tax Credit urges investment.


Policy #3 participating Research

State and also federal governments support study in a selection of ways. For example, united for clinical Research, a coalition of groups that seek capital for the National institutes of Health, (which is sustained by commonwealth grants), states: “NIH-supported research included $69 billion to ours GDP and also supported seven million jobs in 2011 alone.” The joined States remains the leading sponsor of medical-related research study spending $117 billion in 2011. Other institutions, such together the National Academy of Scientists and the National Academy the Engineers, get federal grants for innovative projects. The Agriculture and also Food study Initiative (AFRI) at the United says Department of agriculture awards commonwealth grants to tasks that use the ideal science come the many important farming problems, indigenous food safety and security to childhood obesity. Cooperation in between government-funded universities, academies, and the private sector have the right to spur product innovation and create whole brand-new industries.

Key Concepts and Summary

Public policy with to the to modern technology must frequently strike a balance. For example, patents administer an motivation for inventors, however they need to be restricted to genuinely brand-new inventions and not prolong forever.

Government has actually a variety of policy tools for boosting the price of return for new technology and encouraging its development, including: direct government funding of R&D, tax incentives because that R&D, defense of pundit property, and also forming participating relationships between universities and the exclusive sector.

Self-Check Questions

When a neighborhood is cleaned up and kept neat, there are a variety of positive spillovers: greater property values, much less crime, more happiness residents. What species of government policies can encourage areas to clean up?Education offers both private benefits come those who receive it and wider social services for the economy as a whole. Think around the varieties of policies a government can follow to resolve the issue of optimistic spillovers in modern technology and then suggest a parallel collection of policies that governments might follow because that addressing optimistic externalities in education.

Review Questions

Why could private industries tend to administer too couple of incentives because that the advance of brand-new technology?What can government do come encourage the advancement of new technology?

Critical thinking Questions

Is it inescapable that government must become affiliated in supporting investments in brand-new technology?


The marginal private costs and the marginal exclusive benefits the a firm developing fuel-efficient dare is stood for in the following diagram (show the equilibrium Pmarket, Qmarket). The government would prefer to increase the quantity of fuel-efficient cars to be produced and sold to Qsocial. One method that the government can shot to rise production of fuel-efficient cars is by making castle cheaper to produce, by subsidizing your production. Show, on the same graph, the lot of subsidy required to rise the equilibrium amount of fuel-efficient cars to Qsocial. Hint: the government is trying to influence production v costs, not benefits.


United says Department that the Treasury. “Research and also Experimentation tax Credit.” Accessed November 2013. Http://www.treasury.gov/press-center/news/Pages/investing-in-us-competitiveness.aspx.

U.S. Patent and Trademark Office. 2015. “U.S. Patent Statistics: Calendar years 1963–2014.” Accessed April 10, 2015. Http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.pdf.

United for clinical Research. “Profiles of Prosperity: exactly how NIH-Supported research study Is Fueling personal Sector Growth and Innovation.” Introduction. Accessed January 2014. Http://www.unitedformedicalresearch.com/wp-content/uploads/2013/07/UMR_ProsperityReport_071913a.pdf.

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Answers come Self-Check Questions

Government programs that either salary for neighborhood clean-up directly or that administer reduced taxes payments because that those that clean increase or solve up their own property might be enacted. The is additionally easy come imagine just how a city might allow its enterprise to kind a team that would certainly pay for and also manage neighborhood cleanup.Government programs the either pay because that education directly or that carry out loans or diminished tax payments because that education can create positive spillovers. A city might allow its businesses to form a group that would certainly coordinate organization efforts through schools and local colleges and universities—allowing college student to acquire real-world experience in their favored fields and also providing businesses v enthusiastic, trained workers.