An Evaluation of Federal Policies Concerning Joint Ventures for Applied Research and Development

Current federal policies toward interfirm cooperation in research and development are designed to maximize society's use of available technology. Models of industry resource allocation behavior demonstrate that these policies are detrimental to the formation of risk sharing consortia for the development of new technology. The reason is that current policies often deprive applied research and development activities of their appropriability. Analytical results suggest that, if appropriability is maintained, an underinvestment in applied research and development can be corrected, in most cases, simply by permitting firms to share the benefits and costs of projects in proportion to firms' investments. A permissive governmental posture may be particularly effective for industries consisting of a large number of firms with some firms relatively larger than others. Industries consisting of small numbers of relatively equal size firms may require government as a participant in consortia for applied research and development (appropriable but risky R&D activities).