Most of the time R&D is expensive, the outcome is uncertain, and it has to be financed upfront.
This results in the incentive problem of R&D.
–> Over the time there has been several systems to incentivize R&D.
Modern funding institutions for R&D:
- Foundations created by rich individuals to cover huge expenditures of big science.
- Governments and gov labs driven by the interest in military technology
- Collaborations between formerly seperate sectors: Military-industrial / Academic-industrial
- The industry also engaged in basic research (e.g. nylon, laser)
Because of the inherent characteristics (i.e. R&D is expensive, the outcome is uncertain, and it has to be financed upfront) of innovations there has always been an incentive problem. One of the most prominent introductions was Intellectual Property (IP). We now look at economic incentives for firms to innovate and what influences these incentives.