26 Aug 2009

Economic Laws of Scientific Research

I am reading Terence Kealey's "The Economic Laws of Scientific Research" and finding it to be fairly interesting. He skimps a bit here and there on evidence, but one particular part caught my eye - The traditional economic claim regarding pure science and research is that industry won't invest in science because they cannot reap all the benefits of it. Therefore, government must step in.

However, Kealey claims that although existing science has aspects of a public good, it is expensive to understand and use. Industry finds secondary-mover research (working off of others' research) is much more profitable than first-mover (figuring out stuff on your own), but to access this science and exploit it, companies must hire scientists to digest the information. The best scientists aren't interested in just secondary research, however, and therefore extract a salary to fund their own primary research interests as well as keeping abreast of others' work. The companies must therefore invest heavily in their scientists' first-mover science to retain them as second-mover consultants.

Bottom Line:
It helps to understand the underlying market before pronouncing a market failure.