Optimal public funding for research: a theoretical analysis

De Fraja, Gianni

Abstract

This article studies how a government should distribute funds among research institutions and how it should allocate them to basic and applied research. Institutions differ in reputation and efficiency, and have an information advantage. The government should award funding for basic research to induce the most productive institutions to carry out more applied research than they would like. Institutions with better reputation do more research than otherwise identical ones, and applied research is inefficiently concentrated in the most efficient high reputation institutions. The article provides theoretical support for a dual channel funding mechanism, but not for full economic costing.

Citation

De Fraja, G. (2016). Optimal public funding for research: a theoretical analysis. RAND Journal of Economics, 47(3), 498-528. https://doi.org/10.1111/1756-2171.12135

• Journal Article Type: Article
• Acceptance Date: Oct 13, 2015
• Online Publication Date: Jul 27, 2016
• Publication Date: 2016-10
• Deposit Date: Oct 21, 2015
• Publicly Available Date: Jul 27, 2016
• Journal: The RAND Journal of Economics
• Print ISSN: 0741-6261
• Electronic ISSN: 1756-2171
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 47
• Issue: 3
• Pages: 498-528
• DOI: https://doi.org/10.1111/1756-2171.12135
• Public URL: https://nottingham-repository.worktribe.com/output/1026049
• Additional Information: This is the peer reviewed version of the following article: De Fraja, G. (2016), Optimal public funding for research: a theoretical analysis. The RAND Journal of Economics, 47: 498-528. doi:10.1111/1756-2171.12135, which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1111/1756-2171.12135. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.