Wider economic impacts from R&D investments
Arild Hervik Research seminar7.12.2011
R&D project over 17 years budget 25 mill from RCN
• We deliver every year a report to RCN and a lot of seminars based on the analysis
• We deliver information to help the government leading expert committees
• We deliver based on our experience to other institutions like Vinnova in Sweden
• We deliver by participating in the research system
The important elements in R&D policy in most countries
• Fiscal incentives like the tax incentive system SkatteFUNN
• Direct financial support to firms or R&D institutes as strategic user driven programs
• Imperfect capital markets and IN support to innovative start ups
• Increased quality in basic university research to support innovative firms
Theoretical perspective
• Private companies underinvest in R&D because of market imperfections
• Outcome from R&D only partially appropriated by innovation firm and the rest is spill over to society - lack of incentives
• Imperfections in capital markets because of uncertainties and asymmetric information for innovative start ups - lack of means
• All countries strong focus on R&D policy
Michael Peneder (2008). The problem of private underinvestment in innovation: a policy mindmap, Technovation 28.
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Measuring wider economic impacts from user driven R&D programs
• A cost benefit approach from the Mansfield tradition • The conterfactual problem and input -, output and
behavioural additionality important • Economic benefits for R&D company estimated• Spill over effects in focus • Measurement problems and add a system of other
indicators
A module based database
• The selection module with systematic data from all projects and a final score 1-7
• Ex ante interviews and a company survey database • Ex post interviews 3 years after start up• Long run interviews 8 years after start up• Output indicators like patents , scientific articles ,
new firms , new products etc
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Firm 1R&D
NewKnowledge
Held byFirm 1
BetterProducts;
LowerCosts
ProductMarket
Competition
NewKnowledge Releasedby Firm 1
OtherFirm’s
Knowledge
BetterProducts;
LowerCosts
OtherProductMarkets
Firm 1Profits
OtherFirm’sProfit
CustomerBenefit
OtherFirm’sProfit
CustomerBenefit
• Pure Market Spillover• Plus Pure Knowledge Spillover• Plus Interaction of the Two
Economic Benefit
• Patents• Publications• Other
PrivateReturn
SpilloverGap
SocialReturn
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Social rate of return(profits of all firms plus benefits to consumers)
Private rate of return(profits of innovating firms)
Poor prospects
Marginalcommercial prospects
Goodcommercial prospects
A
B
C
D
Socioeconomic costs and benefits – indicator set
• Indicators for success within the companies• The conterfactual problem and indicators for
additionality• Indicators for private economic costs/benefits• Indicators for eksternal effects• Estimation of socioeconomic benefits
Plans for commercialization of R&D projects – long term
4 %
9 %
15 %
7 %
17 %
48 %
0 % 10 % 20 % 30 % 40 % 50 %
Don't know
Not relevant
No plans ofcommercialization
Expects commercializationwithin next five years
Expects commercializationwithin next two years
Already commercialized
Calculated net present values based on estimates from companies – long term
-500
0
500
1 000
1 500
2 000
2 500
3 000
3 500
2002 2003 2004 2005 2006 2007 2008 2009
1996-98 1999 2000 2001 2002 2003 2004 2005
Net
pre
sent
val
ue in
mill
ions
NO
K (2
009)
Net present value for all projects measuredNet present value for projects with high additionality ex ante
Year of measure
Year of completion
Socioeconomic effects from 709 projects (1996 – 2005)
6.9 b NOK
R&D efforts
Research Councilsupport
(2.1 b NOK)
Companies’ input(4.8 b NOK)
Socioeconomic returns
Private returns(expected)12.7 b NOK
Spill
over
s Marketspillover (26 %)
Knowledgespillover (38 %)
Socioeconomic returnsadjusted for additionality
High input additionality:4.0 b NOK
Indicators of spilloversadjusted for additionality:great potential in about
20 % of the R&D projects
Research Council of Norway
Supported firms8 bn NOK (including
RCN support)
Competence building
Grants 2.5 bn NOK
• Patents• Publications• PhDs• Other
Innovation of products and
processes
Market competition
Profit in firms undertaking
user-driven R&D
Population of820 user-driven
innovation projects Indicators from long-term assessment; four years after project completion
Great significance in 65 % of the projects
Pecuniary effects *
Other firm’s knowledge Innovation Other product
markets
Other firm’s profit
Customer benefits
Expected NPV 14.8 bn NOK in 41 % of the projects
Significant in 30 % of the projects
* Customer benefits; including cost savings and quality improvements for corporate customers, and consumer benefits
Realized 900 innovations in 65 % of the projects
Significant in 40 % of the projects
Knowledge spillover
Other firm’s profit
(Percentages based on interviews of 465 projects in the population)
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The indicator approach
• The private profit compensates for all the projects that never reached the market
• A few projects (20) have 80% of the profit• Project owners estimates market and knowledge
spillovers.• The indicator approach do not result in one figure. It
gives an indication that the portfolio have a positive socioeconomic effect in a broad context.
Firms estimation of project success – ex post
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17
Success ex post - regression
Dependent variable Total estimation of project success
Number of observations 725Non missing observations 517Missing observations 208
Adjusted R2 0,7467
Coefficient t-value Pr > |t|Constant term -0,29 -1,65 0,0997Co-operation and network building 0,30 11,21 < 0,0001Competence building 0,26 6,83 < 0,0001Technological results 0,27 9,5 < 0,0001Financial performance 0,23 11,71 < 0,0001
9.9.2011
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19
Project impact on firm development ex post - regression
Dependent variable Total estimation of project impact
Number of observations 725Non missing observations 554Missing observations 171
Adjusted R2 0,8564
Coefficient t-value Pr > |t|Constant term 0,31 3,40 0,0007Co-operation and network building 0,15 7,56 < 0,0001Competence building 0,32 11,52 < 0,0001Technological results 0,25 10,78 < 0,0001Financial performance 0,25 14,39 < 0,0001
9.9.2011
20
Firms satisfaction with performance and results long term R&D (red) and commercialization (blue)
9.9.2011
25 %
61 %
9 %4 %
1 %7 %
37 %
28 %
12 %5 % 6 % 6 %
0 %
20 %
40 %
60 %
80 %
100 %
Svært fornøyd Fornøyd Nøytral Misfornøyd Svært misfornøyd
Vet ikke Ikke relevant
Langsiktig resultatmåling av BIP-prosjekter med avslutning 2005-2006
Forskningsmessige og kommersielle resultater (n=103)
Forskningsmessige prestasjoner og resultater Kommersielle prestasjoner og resultater
21
Research level of projects – firms judgement
9.9.2011
12 % 13 % 11 % 14 % 16 %
25 % 27 %
16 %
36 % 32 %
30 %28 %
32 %
24 % 26 %
29 % 27 %40 %
18 % 19 %
5 % 5 % 7 % 7 %
0 %
20 %
40 %
60 %
80 %
100 %
2000-2009 2007-2009 2007 2008 2009
(n=952) (n=329) (n=128) (n=99) (n=102)BIP-prosjekter med oppstart 2000-2009
Forskningsinnhold i prosjektene vurdert av bedriftene
Score 1-3
Score 4 (Anvendt forskning)
Score 5
Score 6
Score 7 (Front/leading edge)
22
External effects (PhD, publications and patents) - long term
Long term measurements of R&D-projects, terminated 2005-2006 (n=102)
PhD (#)Publications
w/referee (#) Patent (#)
Expectations - PROVIS 27 - -
Reports from firms (tellekanter) at closing 7 70 30
Reports from firms 4 yrs later 25 21152
(+36 applications)
9.9.2011
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Assessment of socioeconomic benefits – long term – externalities – market spillovers
25 %
31 %
17 %
26 %
8 %
0 % 20 % 40 % 60 % 80 % 100 %
Cost savings or quality improvements inother firms
Increased benefits for consumers and end-users
Diffusion of knowledge through co-operationand labour mobility
Diffusion of technology through patents orimitation
Environmental improvement
Overall benefits to others
Score 6 - 7Score 4 - 5Score 1 - 3Not relevantDon't know
Research findings and know-how from the project known to others – long term – knowledge spillover
38 %
19 %
0 %
20 %
40 %
60 %
80 %
100 %
Research findings Know-how
Don't knowScore 1 - 3Score 4 - 5Score 6 - 7
The R&D projects importance to company development (long term – 8 yrs)
22 %
20 %
36 %
18 %
67 %
47 %
45 %
32 %
0 % 20 % 40 % 60 % 80 % 100 %
Growth
Survival
Competitive power
Productivity
Development of expertise
New technology
Collaboration with R&D institutions
Collaboration with other companies
Score 4 - 5Score 3Score 1 - 2Not relevant
Assessment of input additionality – start up
45 %48 %
45 %
52 %55 %
50 %
0 %
20 %
40 %
60 %
80 %
100 %
1995-2008 2000-08 2006-08 2006 2007 2008
Don't knowLowMediumHigh
Asssessment of behavioural additionality – start up
67 %
47 %
32 %
24 %
25 %
44 %
44 %
0 % 20 % 40 % 60 % 80 % 100 %
Realization of the project
Development of collaboration with R&Dinstitutions
Development of R&D collaboration withother companies
Diffusion of R&D results
From short to long term R&D effort
Possibility of larger projects or wider scopein R&D effort
Upgrading internal R&D expertise (2008)
Score 6 - 7Score 4 - 5Score 1 - 3Not relevantDon't know
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