commercialization in “pre-commercial” areas. Pre-commercial R&D is a process that generates knowledge and technical information with a capability for application across a wide range of products and processes. It involves R&D before construction of the prototypes for commercial application but after indications of general commercial potential for the R&D work in progress.1
For much of this century, the federal government has played an important role in the development of civilian, nonagricultural technology. In agriculture, federal and state programs for research and extension (support for technology adoption) date back to the nineteenth century.2 Another source of federal support for civilian technology development has been an indirect one—federal funding of basic research.
A major federal role in support of basic research has long been viewed as appropriate. It is recognized that technological progress through innovation, of which basic research efforts are a central part, provides for increases in productivity and economic growth.3 Government financing of research to support technological change stems, in part, from the recognition of the need to compensate for the ineffectiveness of private markets in this area. The economic returns on investments in basic research often lie far in the future. Moreover, the returns on investment in basic research are difficult for the investor to protect and capture with devices such as patents or copyrights. The returns to the investor from basic R&D activity are correspondingly low.
The returns to society as a whole, however, can be high, as numerous studies have shown.4 The difficulties in capturing the returns from basic research investments give rise, therefore, to a form of “market failure” in which private returns to the would-be investor are lower than the returns to society as a whole. Without some form of public intervention, market institutions will lead to underinvestment in this type of research activity.5
Federal support for civilian technology development has been confined primarily to support for basic research. Nonetheless, in several areas, the federal government has assumed a more direct role in supporting technology development downstream from basic research. Risk and uncertainty are inherent in any development project and, by themselves do not justify funding of projects by the federal government. Nevertheless, investments in ventures beyond basic research have been justified on the grounds that private firms, in some instances, are not able to “appropriate” or capture sufficient benefits from projects that serve specific missions of federal agencies or the general welfare. Public funds support research and technology development in technologies deemed essential to agency missions; in recent de-