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

increasing awareness of the importance of R & D in modern industrial economies has
led some to reconsider this stance.
A major argument for change is that cooperation aimed at sharing knowledge and
coordinating research among firms in an industry has the effect of internalizing the
externalities of R & D, thereby providing firms with an incentive to invest. But
antitrust authorities have long worried that cooperation in R & D could easily grow
into cooperation in other areas, such as price setting, which would not serve the
public interest. Public policy has tried to find an effective balance. In 1984, the
National Cooperative Research Act was passed to allow some cooperative ventures.
Enterprises registered under the act are shielded from the risk of paying triple damages
in a private antitrust suit but are not shielded from all antitrust risk. By the
end of the 1980s, more than a hundred such ventures had been registered. Among
the best-known are the Electric Power Research Institute, formed by electric power
companies; Bell Communications Research, formed by local telephone companies;
and Sematech, a consortium of computer chip manufacturers.
Wrap-Up
TECHNOLOGICAL CHANGE AND THE BASIC
COMPETITIVE MODEL
Basic competitive model
Assumes fixed technology
Assumes perfect competition, with
many firms in each industry
Perfect capital markets
No externalities
No public goods
Industries in which technological
change is important
The central question is what determines
the pace of technological
change. Related issues include what
determines expenditure on R & D and
how learning by doing affects the level
of production.
Competition is not perfect; industries
where technological change is important
tend to have relatively few firms.
Firms find it difficult to borrow to
finance R & D expenditures.
R & D confers benefits to others
besides the inventor; even with the
protection afforded by patents, the
inventor appropriates only a fraction of
the social benefits of an invention.
Basic research is a public good: the
marginal cost of an additional person
making use of a new idea is zero
(nonrivalrous consumption), and it is
often difficult to exclude others from
enjoying the benefits of basic research.
GOVERNMENT PROMOTION OF TECHNOLOGICAL PROGRESS ∂ 467