Dr. Lerner's work, Dr. Flamm anticipated a discussion of the information asymmetries that venture capital addresses, that is, the ability of venture capitalists to better assess and monitor technology investment opportunities than other financial institutions, thereby addressing underinvestment in technology.

Dr. Flamm pointed out that the capital markets and appropriability issues are completely separate. In the presence of perfect capital markets, there still may be underinvestment in R&D because of appropriability problems. An interesting aspect of Dr. Lerner's empirical work is that it shows the ways in which venture capital addresses imperfections in capital markets, but it also shows that venture capital does not address all imperfections. Indeed, Dr. Lerner's work suggests ways in which venture capital may create new problems in capital markets.

A question for the ATP is whether the government should take aim at areas in which capital market imperfections result in insufficient R&D investment, and then unleash the ATP policy apparatus at identified target areas. Dr. Flamm expressed hope that Dr. Lerner would address this.

Terminological Confusion in the ATP

In the ATP, terms such as small firms, small start-up firms, and high-technology firms seem to be used interchangably. Dr. Flamm said that these are really different populations with small areas of intersection, but that the failure to understand this leads to confusion. For example, small firms often are portrayed as if they were all high-technology start-ups, which is not the case. Dr. Flamm suggested that panelists be clear about the type of firm or firms that they were talking about in their remarks.

Definition of High-Technology Firms

Dr. Flamm also suggested that we should be careful about defining high-technology firms, asking whether it is accurate to identify R&D only with high-technology firms. There are many products in the economy that use high-technology in production or distribution, but these firms would not necessarily be characterized as high-technology firms, and many such firms do not conduct much, if any, R&D. Dr. Flamm recalled a recent Wall Street Journal article describing an Internet furniture start-up that a venture capital firm was considering funding. Such a firm probably is not what we think of when we talk about high-technology firms or R&D-intensive firms. The firm uses advanced technology, but R&D, and incentives to invest in it, may not be an issue for this firm. Dr. Flamm asked panelists to distinguish between high-technology or R&D-intensive firms and firms that are users of R&D and high-technology components.

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