Wider economic impacts from R&D investments

1. Wider economic impacts from R&D investments Arild Hervik Research seminar 7.12.2011

2. R&D project over 17 yearsbudget25 mill from RCN • Wedelivereveryyear a report to RCN and a lot of seminars basedontheanalysis • Wedeliverinformation to helpthegovernmentleadingexpertcommittees • Wedeliverbasedonourexperience to otherinstitutions like Vinnova in Sweden • Wedeliver by participating in theresearch system

3. The important elements in R&D policy in most countries • Fiscalincentives like thetaxincentive system SkatteFUNN • Directfinancial support to firms or R&D institutes as strategicuser driven programs • Imperfectcapital markets and IN support to innovative start ups • Increasedquality in basicuniversityresearch to support innovative firms

4. Theoreticalperspective • Private companiesunderinvest in R&D becauseof market imperfections • Outcome from R&D onlypartiallyappropriated by innovationfirm and the rest is spill over to society - lackofincentives • Imperfections in capital markets becauseofuncertainties and asymmetricinformation for innovative start ups - lackofmeans • All countriesstrongfocuson R&D policy

5. Michael Peneder (2008). The problem of private underinvestment in innovation: a policy mindmap, Technovation 28. 7.12.2011 5

6. Measuringwidereconomicimpacts from user driven R&D programs • A costbenefitapproach from theMansfieldtradition • The conterfactual problem and input -, output and behaviouraladditionalityimportant • Economicbenefits for R&D companyestimated • Spill over effects in focus • Measurement problems and add a system ofotherindicators

7. A modulebased database • The selectionmodulewithsystematic data from all projects and a final score 1-7 • Ex ante interviews and a company survey database • Ex post interviews 3 yearsafter start up • Long run interviews 8 yearsafter start up • Output indicators like patents , scientificarticles , newfirms , newproductsetc

8. Pure Market Spillover • Plus Pure Knowledge Spillover • Plus Interaction of the Two Economic Benefit Firm 1 Profits Private Return Firm 1 R&D New Knowledge Held by Firm 1 Better Products; Lower Costs Product Market Competition Customer Benefit Other Firm’s Profit Social Return New Knowledge Released by Firm 1 Spillover Gap • Patents • Publications • Other Other Firm’s Profit Other Firm’s Knowledge Better Products; Lower Costs Other Product Markets Customer Benefit 7.12.2011 8

9. C Social rate of return (profits of all firms plus benefits to consumers) B D A Poor prospects Marginal commercial prospects Good commercial prospects Private rate of return (profits of innovating firms) 7.12.2011 9

10. Socioeconomiccosts and benefits – indicatorset Indicators for successwithinthecompanies The conterfactual problem and indicators for additionality Indicators for private economiccosts/benefits Indicators for eksternaleffects Estimationofsocioeconomicbenefits

11. Plans for commercializationof R&D projects – long term

12. Calculatednet present valuesbasedonestimates from companies – long term

13. Socioeconomiceffects from 709 projects (1996 – 2005)

14. Population of 820 user-driven innovation projects Indicators from long-term assessment; four years after project completion Research Council of Norway (Percentages based on interviews of 465 projects in the population) Expected NPV 14.8 bn NOK in 41 % of the projects Grants 2.5 bn NOK Profit in firms undertaking user-driven R&D Great significance in 65 % of the projects Realized 900 innovations in 65 % of the projects Supported firms 8 bn NOK (including RCN support) Competence building Innovation of products and processes Market competition Pecuniary effects * Significant in 30 % of the projects Other firm’s profit Significant in 40 % of the projects Knowledge spillover • Patents • Publications • PhDs • Other Other firm’s profit Other firm’s knowledge Innovation Other product markets Customer benefits * Customer benefits; including cost savings and quality improvements for corporate customers, and consumer benefits 7.12.2011 14

15. The indicatorapproach The private profitcompensates for all theprojectsthat never reachedthe market A fewprojects (20) have 80% oftheprofit Project ownersestimates market and knowledge spillovers. The indicatorapproach do not result in onefigure. It gives an indicationthattheportfolio have a positive socioeconomiceffect in a broadcontext.

16. Firmsestimationofprojectsuccess – ex post 7.12.2011 16

17. Success ex post - regression

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19. Project impactonfirmdevelopment ex post - regression

20. Firms satisfaction with performance and results long term R&D (red) and commercialization (blue)

21. Research level of projects – firms judgement

22. External effects (PhD, publications and patents) - long term

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24. Assessmentofsocioeconomicbenefits – long term – externalities – market spillovers

25. Research findings and know-how from theprojectknown to others – long term – knowledge spillover

26. The R&D projectsimportance to companydevelopment (long term – 8 yrs)

27. Assessmentof input additionality – start up

28. Asssessmentofbehaviouraladditionality – start up

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