DP8442 A Theoretical Analysis of Public Funding for Research

Author(s): Gianni De Fraja
Publication Date: June 2011
Keyword(s): Basic and applied research, R&D, Scientific advances
JEL(s): D82, H42, O38
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8442

This paper studies government funding for scientific research. Funds must be distributed among different research institutions and allocated between basic and applied research. Informational constraints prevent less productive institutions to be given any government funding. In order to internalise the beneficial effects of research, the government requires the most productive institutions to carry out more applied research than they would like. Funding for basic research is used by the government to induce more productive institutions to carry out more applied research than they would like.