Question

Some economists argue that private firms will not undertake the efficient amount of basic scientific research.
a. Explain why this might be so. Classify basic research in one of the categories; private goods, natural monopolies, common resources, public goods

b. What sort of policy has the United States adopted in response to this problem?

c. It is often argued that this policy increases the technological capability of American producers relative to that of foreign firms. Is this argument consistent with your classification of basic research in part (a)?

Answer 1

(a)  Private firms will not undertake the efficient amount of basic scientific research as it is not excludable and also not rival in consumption.That is a basic research cannot be patented and it can be consumed by every one without diminishing its utility.

Based on the charactersitics of non excluadable and non rivalary in consumption basic research falls under public goods.

(b)  To overcome the above problem, the government tries to provide the public good of general knowledge in various ways. Government agencies such as National Institutes of Health and the National Science Foundation, subsidize basic research in medicine, mathematics, physics, chemistry, biology and economics, government also funds space research program as it adds to society’s pool of knowledge.

(c)  This policy increases the technological capability of American producers relative to that of foreign firms. This is so because, the private firms develop specific technological knowledge based on the basic research provided by the government. The specific technological knowledge of private firms can be patented which gives the inventor the exclusive right to the knowledge that he has created for a period of time. Anyone who wants to use this specific knowledge has to pay the inventor. Here, the patents made the knowledge created by the inventor excludable and is applied to some potential beneficiaries of a public good and not others.
This argument is inconsistent with classification of basic research in part (a).