gene-mapping experiment, with one region assigned to the private sector and the other to federally sponsored researchers, differences in outcomes could be due to characteristics of the regions that were randomly assigned (and random assignment would not eliminate chance variation if the regions were too small). But many insights might emerge from such an effort, including the identification of cost consequences, the effect of funding source on ultimate access to resulting technological innovations, the dissemination of research results, the effectiveness of private sector firms in exploiting price discrimination, and so on. The scope for conducting such experiments might be large, and should be targeted toward those areas of research in which there is genuine uncertainty about the appropriate allocation between property rights and taxes and subsidy.
A more conservative strategy would be to collect detailed information about natural experiments such as the discovery and patenting of PCR. It would be very useful to have even ballpark estimates of the total monopoly price distortions induced by the evolving pricing policy being used by the patent holder.
Federal agencies often use estimates of industry revenues or consumer surplus to make claims about benefits or returns to their investments in scientific and technological research. Though these components of research productivity are important, they are inadequate as a basis for setting and evaluating government policy toward research. Our discussion has emphasized the choice between property rights and a system of taxes and subsidy (i.e., government sponsorship) for research. This decision is not made at the level of NIH or any other agency that sponsors and conducts research, but it is fundamental to public policy.
It may be tempting to dismiss these issues because it is so difficult to estimate the quantities that we identify as being central to decisions about government support for research. However, it would not be difficult to make rough estimates of these quantities and to begin to use them in policy discussions. Undoubtedly, it is difficult to select among the alternative mechanisms for supporting research. Nevertheless, decisions about the use of these mechanisms are made every time the government makes spending and property rights decisions relevant for science and technology policy issues. The effort required to obtain the needed information and consider these issues systematically might pay a large social return.
In coming years, three forces will increase the importance of taking this broad perspective on the federal role in supporting research. First, voters and politicians are likely to attribute a higher cost to taxes and deficit finance. As a result, in future years all federal agencies will likely be forced to rely less on the tax and subsidy mechanism for supporting technological progress than they have in the past.
Second, a dramatic reduction in the cost of information processing systems will increasingly affect all aspects of economic activity. This change will make it easier to set up new systems of property rights, which can be used to give private firms an incentive to produce goods that traditionally could be provided only by the government. The rapid development of the Internet as a medium of communication may ultimately lead to advances in the ability to track and price a whole new range of intellectual property. The success of the software industry also suggests that other kinds of innovations in areas such as marketing may make it possible for private firms to earn profits from goods even when property rights to the goods they produce seem quite weak.
At the same time, a third force—the move toward managed care in the delivery of health care services—pushes in the other direction. This change in the market for health care services is desirable on many grounds, but to the extent that it reduces utilization of some medical technologies, it will have the undesirable side effect of diminishing private sector incentives to conduct research leading to innovations in health care. Everything else equal, this change calls for increased public support for biomedical research. In the near term, the best policy response may therefore be one that combines expanded government support for research in some areas with stronger property rights and a shift toward more reliance on the private sector in other areas. Further work is needed to give precise, quantitative guidance to striking the right balance. In the face of stagnant or declining resources, we will have to make increased efforts to gather and analyze the information needed to target research activities for subsidy and to learn which areas the private sector is likely to pursue most effectively.
A.M.G. is a Health Services Research and Development Senior Research Associate of the Department of Veterans Affairs.
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