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Research policy (II)

Updated: Apr 12, 2021

How is the notion of research externalities taken into account in public innovation policies in Europe?

We will discuss the justification for public intervention and the forms of this intervention.

Research activities generate positive externalities linked to the knowledge produced (A. Marshall, 1890). Indeed, knowledge is an economic good which has the characteristics of a public good: non-rival and non-exclusive (Foray, 2006).

As a result, other companies will benefit from this new knowledge without financial compensation for the initiator of the research investment. The first beneficiaries of these externalities are the economic agents who are close to the source of production of this knowledge. This “proximity” can be geographic, technological or cultural. These knowledge externalities are likely to discourage private companies from investing in R&D due to the lack of total ownership of the results and benefits of their research.

Also the low R&D intensity in the EU, the differences between public and private spending, the proportion of researchers in the working population, are indicators of the poor performance of the European Union vis-à-vis the American economies and Japanese, their main competitors.

These same externalities, but from a macroeconomic point of view, constitute the justifications for European public innovation policies aimed at encouraging private investment in R&D to achieve the objective of 3% of GDP (1/3 public and 2/3 private) now until 2020. These European public policies are part of the creation of a European Research Area, the objective of which is to create the conditions for strong growth and increased employment within this territory.

Thus, public intervention takes several forms, mainly:

The promotion of R&D cooperation between several EU countries and between public research bodies, large companies and SMEs. The tool is the European Framework Program for Research and Innovation (PCRD, Horizon 2020). The program pursues several objectives:

1) To increase investments in R&D through a logic of financial incentive through a subsidy which compensates in particular for the high transaction costs due to cooperation,

2) To encourage R&D cooperation between different actors in order to '' internalize research externalities and avoid duplication of investments,

3) Encourage cooperation between different countries and thus promote the dissemination of knowledge within the European Research Area for better uniformity at the economic level.

The financing of research infrastructures, the significant cost of which cannot be borne by companies deprived of these infrastructures because of the very low private return.

The establishment of a European patent system (European Patent Office, the European patent, Unitary Patent and the Unified Patent Court, expected in 2019). This European patent system increases private returns on a European scale.

Ouarda BOUZIANE, CEO Founder EuroBreath.IT, March 16, 2021

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