The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations by Philippe Aghion & Céline Antonin & Simon Bunel

Author:Philippe Aghion & Céline Antonin & Simon Bunel [Aghion, Philippe & Antonin, Céline & Bunel, Simon]
Language: eng
Format: epub
ISBN: 9780674971165
Google: 7SAZEAAAQBAJ
Published: 2021-04-20T11:41:39+00:00

Basic Research and Applied Research in Private Firms

Our model of research as a multistep process sought to explain why basic research is carried out at universities while applied research occurs mostly in firms. In reality, the distinction between basic and applied research is not as clear-cut as this model suggests. First, between the two extremes, there is a continuum of research that is more or less applied or more or less basic. Between the university, which gives researchers total freedom, and firms that completely direct their activity, there are firms like Google, which allow their researchers partial freedom. Finally, even within a firm, there is often some research that is more on the basic side and some that is more on the applied side.

A recent study differentiates basic research from applied research within firms.28 Many firms have multiple establishments, often corresponding to different product lines. These product lines can be part of the same business sector or several different business sectors. The study finds that the greater the number of business sectors in which a firm operates, the more the firm invests in basic research. The underlying idea is that basic research plays the role of Stage 0 for applied research in multiple sectors, whereas applied research is sector-specific from the outset. Once again we see that basic research enhances diversity in innovation. But since basic research generates more positive externalities than applied research, and these externalities also benefit a firm’s competitors, firms will always tend to underinvest in basic research.29 For this reason, the state and universities have a critical role to play.

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