David B. Audretsch1 Barry Bozeman2 Kathryn L. Combs3 Maryann Feldman4 Albert N. Link5 Donald S. Siegel6 Paula Stephan7 Gregory Tassey8 The Economics of Science and Technology Charles Wessner9 ABSTRACT. This paper provides a non-technical, accessible Science and technology policy are even more introduction to various topics in the burgeoning literature on important in the “new” economy, with its greater the economics of science and technology. This is an interdisci- emphasis on the role of intellectual property and plinary literature, drawing on the work of scholars in the fields knowledge transfer. Thus, it is unfortunate that of economics, public policy, sociology and management. The aim of this paper is to foster a deeper appreciation of the eco- most individuals rarely have the opportunity to nomic importance of science and technology issues. We also study this subject. As a result, the general pub- hope to stimulate additional research on these topics. lic poorly understands the antecedents and conse- JEL Classification: O3 quences of technological change. It is clear in the report that most Americans are not well-informed about public policy issues relating to science and technology. As shown in Table I, individuals rank science and technology policy issues relatively high in terms of interest, 1. Introduction yet noticeably lower in terms of their self-assessed Science and technology have long been regarded knowledge about the issues. However, it is pre- as important determinants of economic growth. cisely these issues that may be most critical in Edwin Mansfield (1971, pp. 1–2), a pioneer in the determining long-run economic growth. economics of technological change, noted: The purpose of this paper is to provide an overview of salient topics in the economics of Technological change is an important, if not the most important, factor responsible for economic growth science and technology. We devote considerable without question, [it] is one of the most important determi- attention to historical and institutional informa- nants of the shape and evolution of the American economy. tion concerning these issues, because we believe that an understanding of the current situation depends to a large extent on an understanding of how this literature and the institutions that sup- 1Indiana University port science and technology evolved.1 2Georgia Institute of Technology 3University of St. Thomas The remainder of this paper is organized as 4Johns Hopkins University follows. Section 2 provides some initial defini- 5University of North Carolina at Greensboro tions. In Section 3, we summarize major pub- Greensboro, NC 27402 lic policy initiatives toward science and technol- E-mail: [email protected] ogy in the United States from the colonial period 6University of Nottingham and Rensselaer Polytechnic Institute 7Georgia State University to the present. Our up-front emphasis on policy 8National Institute of Standards and Technology underscores the subtlety of partnerships involving 9National Academy of Sciences the public and private sectors that have emerged Journal of Technology Transfer, 27, 155–203, 2002 ©2002 Kluwer Academic Publishers. Manufactured in The Netherlands. 156 Audretsch et al. Table I Section 7, tax incentives in Section 8, research col- Indices of public interest and self-assessed knowledge in laborations in Section 9, and public/private part- selected policy issues, 1999 nerships that subsidize research in Sections 10 and Public 11. These mechanisms, and their relationshipto interest Policy issues Informedness firm behavior, are summarized in Section 12. All of the policy mechanisms discussed in Sec- 82 New medical discoveries 53 tions 7 through 11 are designed to stimulate the 71 Environmental pollution 48 71 Local school issues 58 private sector’s demand for R&D resources. For 67 Issues about new scientific demand mechanisms to be effective there must discoveries 44 also be a supply response in terms of the edu- 65 Use of new inventions and cation and increased availability of scientists and technologies 43 engineers. This is the topic of Section 13. As with 65 Economic issues and business all public-sector initiatives, there is also an issue conditions 50 64 Military and defense policy 44 of public accountability. How effectively are public 55 Use of nuclear energy to research funds being spent? The history of public generate electricity 29 accountability and related evaluation methods are 53 International and foreign policy 40 described in Section 14. Section 15 constitutes our 51 Space exploration 37 summary statement regarding the current state of 47 Agricultural and farm issues 33 the field of economics of science and technology Source: Science and Engineering Indicators—2000, Appendix and future directions. Tables 8-2 and 8-5. over the last three centuries. These “public/private 2. Fundamental concepts partnerships” have evolved from government’s As in any new field—and we view the economics desire to steer private investment towards certain of science and technology as an emerging field that types of scientific activity and the development draws on concepts from numerous disciplines— and use of new technologies. Thus, the federal there are several fundamental concepts. Thus, we government has attempted to establish an environ- begin with several definitions. ment that is conducive for private sector invest- In everyday conversation, terms such as science ment in research and development (R&D), as well and technology, as well as invention and innova- as one in which the public and private sectors can tion, are often used interchangeably. However, for be partners in undertaking innovative activity. academics and policymakers there are important Section 4 emphasizes the role of technology in distinctions that give each of these terms a unique economic growth and sets the stage for under- meaning. standing the scope of science and technology pol- Science, in a broad sense, is the search for icy mechanisms used to maintain national growth. knowledge, and that search is based on observed Fundamental to all such policy instruments is facts and truths. Thus, science begins with known the relationshipamong investment in R&D, tech- starting conditions and searches for unknown nological advancement, and economic growth. end results (Nightingale, 1998). Technology is the Dimensions of R&D are described in Section 5. application of new knowledge learned through The following section introduces the second part science to some practical problem. Technological of the primer by emphasizing the entrepreneurial change is the rate at which new knowledge is dif- nature of firms, both to innovate and to respond to fused and put into use in the economy. policy initiatives. Section 6 advances an economic Closely related to science and technology are rationale for government’s role in the innovation the concepts of invention and innovation. Follow- process. An articulation of such a role has long ing Bozeman and Link (1983, p. 4): been absent from science and technology policy The concepts commonly used in connection with innovation debates. Having set forth this rationale, four pol- are deceptively simple. Invention is the creation of some- icy mechanisms are discussed from a historical as thing new. An invention becomes an innovation when it is well as an economic perspective: patent laws in put in use. The Economics of Science and Technology 157 Innovations may be new products, new processes, perception of the opportunity is the fundamental or new organizational methods that are novel and first step. The consequent step is the ability to act add value to economic activity. Thus, invention on that perception. What defines the entrepreneur parallels the concept of science and innovation is the ability to move technology forward into parallels the concept of technology. innovation. The technology may be discovered or It is useful to think of an innovation as some- developed by others. The entrepreneur is able to thing new that has been brought into use. Thus, recognize the commercial potential of the inven- this innovation represents, in a sense, a new tion and organize the capital, talent, and other underlying technology.2 Embedded in this distinc- resources that turn an invention into a commer- tion between invention and innovation is a process cially viable innovation. whereby inventions become applied. This pro- What are the requisite resources needed for cess is central to what we call entrepreneurship. action, which takes the perception of an opportu- Entrepreneurship is a process involving the organi- nity forward to result in an innovation? One obvi- zation of resources, and the output of that process ous answer is research and development (R&D), is an innovation.3 Of course, for entrepreneurship that is, the commitment of resources to inven- to have economic value the resultant output or tion and innovation. R&D not only provides a innovation must have economic value. stock of knowledge to encourage perception but From an economic perspective, the concept also the ability for the firm to foster action. How- of entrepreneurial innovation can be traced back ever, firms that do not conduct R&D can still be to the Physiocrats in France in the mid-1700s. entrepreneurial, as discussed above. In such firms, Baudeau (1910, p. 46) referred to a process innovations are likely to be introduced rather than guided by an active agent, which he called an produced. Such firms act in an entrepreneurial entrepreneur, within a capitalistic system4: manner