An Economic Model of Public Funding of Science: The Optimal Ratio of Discovery to Invention for Endogenous Growth

Harashima, Taiji (2026): An Economic Model of Public Funding of Science: The Optimal Ratio of Discovery to Invention for Endogenous Growth.

Abstract

Many empirical studies support the necessity of public funding of science, but endogenous growth models do not necessarily do so. In this paper, I distinguish between investments in research and development (R&D) for “discovery” and “invention” in a framework of an endogenous growth model and show that there is the optimal ratio of discovery to invention in the sense that the highest productivity of producing knowledge is achieved. Because discovery generally does not generate profit, investments in R&D for discovery have to be publicly financed. Therefore, a government has the responsibility to maintain an optimal ratio of discovery to invention to keep the highest rate of endogenous economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous growth; Discovery; Production of knowledge; Public funding of science; R&D
• Subjects: H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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