Abstract
This paper contributes to the burgeoning literature about the knowledge economy by addressing the question of which intellectual-based institutions in an economy contribute the greatest amount to economic growth. In particular, we posit a theoretical model that compares the research efficiency of government research labs to university research labs. We conclude that there is merit in shifting public moneys from government research labs to university research labs from an efficiency perspective. This result opens the door for empirical research on relative research efficiencies and the implications for efficiency gains on economic growth.
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Notes
The policy emphasis in ARRA on jobs, especially innovation-based jobs, traces at least to the National Academy of Sciences (2007) report, Rising Above the Gathering Storm: Energizing and Employing America for a Better Economic Future. This was a foundation report for the America COMPETE Act of 2007 (P.L. 110-69), which was reauthorized as the America COMPETES Reauthorization Act of 2010 in January 2011.
Dubina et al. (2012) anticipate the importance of this question, but they emphasize that there is an optimal level of innovation to maximize economic growth.
In the model below, the extrinsic risk aversion of the government lab is attributed to a concave revenue function; in contrast, the extrinsic risk neutrality of university lab is attributed to a linear revenue function. If in fact both types of labs are also intrinsically risk neutral but the government lab being (weakly) more intrinsically risk averse than the university lab, this could be modeled by constructing a lab's objective function whose arguments are the lab's revenue function and its degree of intrinsic risk aversion. In this case, the objective function of the government lab would be more concave than the objective function of the university lab because of the concavity of the government's revenue function and its (weakly) greater intrinsic risk aversion. While the exposition of this model would be a bit more complicated mathematically, the conclusions would be the same as the model presented in this paper.
We are using the phrase elected officials to indicate legislators or individuals in elected executive positions.
Niskanen (1971) argues that public enterprises maximize budgets both because of a desire on the part of the manager of the public enterprise for such things as salary, power, and ease of managing the bureau and because it serves the interests of elected government officials who depend on the public enterprise to propose new and expanded programs among which the elected officials can choose to satisfy their constituencies.
Bozeman and Kingsley (1998, p. 110) define risk as “the exposure to the chance of loss from one's actions or decisions.” Within the context of our model, a lab's decision centers on the level of output to produce.
Indirect evidence that supports the idea that university research can attract better students and enhance university reputations can be found in O'Brien et al. (2010) that found that greater faculty research, in this case in business schools, was associated with higher salaries for their graduates. While the article argues that this is the result of differences in the quality of instruction, there may be a sample selection bias as well. To the extent there is a sample selection bias, it lends support for the idea that research attracts better students. And in either case, the higher salaries suggest that the general reputation of the university is higher as well.
This conclusion does not alter our prior that government, much like the private sector, can act in an entrepreneurial manner (see Link and Link 2009).
Sauermann and Cohen (2011) provide evidence that researchers who seek intellectually challenging and independent work environments are more innovative than those who seek job security and control. To the extent university labs attract relatively more of those with intrinsic interest in intellectually challenging and independent work environments, the advantages of university labs are still higher.
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Leyden, D.P., Link, A.N. Research Risk and Public Policy in a Knowledge-Based Economy: the Relative Research Efficiency of Government Versus University Labs. J Knowl Econ 5, 294–304 (2014). https://doi.org/10.1007/s13132-012-0145-0
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DOI: https://doi.org/10.1007/s13132-012-0145-0