[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

even the existence of certain materials that exhibit superconductivity
at temperatures considerably above absolute zero—cannot
be patented.
Second, the marginal cost of an additional individual enjoying
a public good is zero (i.e., consumption is nonrivalrous). Informing
an additional person of a basic discovery does not detract from the
knowledge that the original discoverer has, though doing so may
reduce the potential profits she might earn from it. Indeed, sharing
the fruits of basic research as soon as they are available can yield
enormous benefits—as other researchers use this knowledge to
seek further innovations.
As is true of all public goods, private markets yield an undersupply
of basic research. Accordingly, the government supports
basic research through the National Science Foundation, the
National Institutes of Health, and other organizations. Some of the
expenditures of the Department of Defense on R & D also go into
basic research. Still, economists are voicing increasing concern
that expenditures on basic research are inadequate. Support by
the federal government for R & D, outside of defense, has fallen, as
a percentage of the nation’s output, over the past thirty years, and
more than half of government R & D expenditures remain defense
related. This emphasis explains why, while the United States devotes
about the same proportion of its economy to R & D as do Japan and
Germany (as shown in Figure 20.3), less of the total is spent in developing
new products and processes to make American industry
more competitive. And more is spent in developing better and more
effective weapons.
PERCENT OF GDP
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Figure 20.3
United
States
Defense
Nondefense
Germany Japan United
Kingdom
COMPARISON OF R & D EXPENDITURES
ACROSS COUNTRIES
Total U.S. expenditures, as a percentage of the nation’s
output, are similar to those of other major industrialized
countries. The difference lies in how these expenditures are
allocated: U.S. expenditures are concentrated more heavily
in defense than those of Germany or Japan.
SOURCE: National Science Foundation, Science and Engineering
Indicators (2000).
Government Promotion of
Technological Progress
Government’s efforts to stimulate innovative activity enjoys widespread support,
as long as that encouragement takes the form of protecting intellectual property
rights and supporting basic R & D. But its other methods of promoting R & D have
generated more criticism.
SUBSIDIES
One way in which government has sought to encourage new technologies is through
subsidies. Critics of this approach argue that governments have a poor track record
in choosing what to subsidize. As evidence, they note that the Concorde, the supersonic
airplane developed with the support of the French and British governments
that flew commercially from 1976 to 2003, was never able to pay for itself. Closer to
GOVERNMENT PROMOTION OF TECHNOLOGICAL PROGRESS ∂ 465