Commercial Incentives in R & D : Research versus Development ∗

This paper proposes a framework to analyse the effects of scientific rewards and commercial incentives on the pattern of research. We build a simple repeated model of a researcher capable to obtain innovative ideas. We analyse how scientific and commercial incentives affect the allocation of the researcher’s time between research and development. Although commercialisation incentives reduce the time spent in research, they might also affect the choice of research projects. Monetary rewards induce a more intensive search for (ex-post) path-breaking innovations, which are more likely to be generated through (ex-ante) riskier research programs. We derive the optimal incentive scheme for a given project in terms of the researcher’s and the organisation’s objectives. ∗An earlier version of this paper was circulated under the title “Commercial Incentives in Academia”. We are grateful to David Pérez-Castrillo, Reinhilde Veugelers, the coeditor and two referees for valuable discussions and helpful comments. We have also benefited from the comments of seminar participants at the Jornadas de Economia Industrial at IESE (Barcelona) and at the European Economic Association conference in Budapest. Financial support from Ministerio de Ciencia y Tecnología (SEJ2006-00538), Consolider-Ingenio 2010 (CSD 2006-00016), Barcelona GSE Research Network and of the Government of Catalonia (2005SGR00836) is gratefully acknowledged. †Department of Economics, City University of London, Northampton Square, London EC1V 0HB, UK. E-mail: [email protected]. ‡Corresponding author: Universitat Autònoma de Barcelona, Departament d’Economia i d’Història Econòmica, Fac CCEE (Edifici B), 08193 Bellaterra (Barcelona), Spain. E-mail: [email protected]