Wider economic impacts from
R&D investments
Arild Hervik
Research seminar
7.12.2011
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.
•
7.12.2011
5
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
• Pure Market Spillover
• Plus Pure Knowledge Spillover
• Plus Interaction of the Two
Economic Benefit
Firm 1
Profits
Firm 1
R&D
New
Knowledge
Held by
Firm 1
Better
Products;
Lower
Costs
Product
Market
Competition
Private
Return
Customer
Benefit
Other
Firm’s
Profit
• Patents
• Publications
• Other
New
Knowledge
Released
by Firm 1
Other
Firm’s
Knowledge
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7.12.2011
Social
Return
Spillover
Gap
Better
Products;
Lower
Costs
Other
Product
Markets
Other
Firm’s
Profit
Customer
Benefit
8
C
Social rate of return
(profits of all firms plus
benefits to consumers)
B
D
A
Poor
prospects
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7.12.2011
Marginal
commercial
prospects
Good
commercial
prospects
Private rate of return
(profits of innovating firms)
9
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
Already commercialized
48 %
Expects commercialization
within next two years
17 %
Expects commercialization
within next five years
7%
No plans of
commercialization
15 %
Not relevant
Don't know
9%
4%
0%
10 %
20 %
30 %
40 %
50 %
Calculated net present values based on estimates
from companies – long term
Net present value for all projects measured
Net present value for projects with high additionality ex ante
Net present value in millions NOK (2009)
3 500
3 000
2 500
2 000
1 500
1 000
500
0
-500
2002
2003
2004
2005
2006
2007
2008
2009
Year of measure
1996-98
1999
2000
2001
2002
2003
2004
2005
Year of completion
Socioeconomic effects from
709 projects (1996 – 2005)
R&D efforts
Socioeconomic returns
Socioeconomic returns
adjusted for additionality
Private returns
(expected)
12.7 b NOK
High input additionality:
4.0 b NOK
Research Council
support
(2.1 b NOK)
Companies’ input
(4.8 b NOK)
Spillovers
6.9 b NOK
Market
spillover (26 %)
Knowledge
spillover (38 %)
Indicators of spillovers
adjusted for additionality:
great potential in about
20 % of the R&D projects
Population of
820 user-driven
innovation projects
Research Council of
Norway
Grants
2.5 bn NOK
Supported firms
8 bn NOK (including
RCN support)
Indicators from long-term assessment; four years after project completion
(Percentages based on interviews of 465 projects in the population)
Great significance
in 65 % of the
projects
Competence
building
Realized 900
innovations in 65 %
of the projects
Innovation of
products and
processes
Market
competition
Profit in firms
undertaking
user-driven R&D
Expected NPV
14.8 bn NOK in
41 % of the
projects
Pecuniary effects
*
Significant in
30 % of the
projects
Other firm’s
profit
Significant in 40 % of the projects
Knowledge
spillover
• Patents
• Publications
• PhDs
• Other
Other firm’s
knowledge
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7.12.2011
Innovation
Other product
markets
Other firm’s
profit
Customer
benefits
* Customer benefits; including cost
savings and quality improvements
for corporate customers, and
consumer benefits
14
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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7.12.2011
16
Success ex post - regression
Dependent variable
Number of observations
Non missing observations
Missing observations
Adjusted R2
Constant term
Co-operation and network building
Competence building
Technological results
Financial performance
9.9.2011
Total estimation of
project success
725
517
208
0,7467
Coefficient
-0,29
0,30
0,26
0,27
0,23
t-value
-1,65
11,21
6,83
9,5
11,71
Pr > |t|
0,0997
< 0,0001
< 0,0001
< 0,0001
< 0,0001
17
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Project impact on firm development ex post regression
Dependent variable
Number of observations
Non missing observations
Missing observations
Adjusted R2
Constant term
Co-operation and network building
Competence building
Technological results
Financial performance
9.9.2011
Total estimation of
project impact
725
554
171
0,8564
Coefficient
0,31
0,15
0,32
0,25
0,25
t-value
3,40
7,56
11,52
10,78
14,39
Pr > |t|
0,0007
< 0,0001
< 0,0001
< 0,0001
< 0,0001
19
Firms satisfaction with performance and results long term
R&D (red) and commercialization (blue)
Forskningsmessige og kommersielle resultater (n=103)
Forskningsmessige prestasjoner og resultater
Kommersielle prestasjoner og resultater
100 %
80 %
61 %
60 %
37 %
40 %
28 %
25 %
20 %
12 %
9%
7%
4%
5%
6%
6%
1%
0%
Svært fornøyd
Fornøyd
Nøytral
Misfornøyd
Svært
misfornøyd
Vet ikke
Ikke relevant
Langsiktig resultatmåling av BIP-prosjekter med avslutning 2005-2006
9.9.2011
20
Research level of projects – firms judgement
Forskningsinnhold i prosjektene vurdert av bedriftene
100 %
80 %
5%
5%
7%
7%
29 %
27 %
18 %
19 %
24 %
26 %
40 %
60 %
30 %
28 %
Score 1-3
Score 4 (Anvendt forskning)
32 %
40 %
36 %
20 %
25 %
32 %
27 %
Score 5
Score 6
Score 7 (Front/leading edge)
16 %
12 %
13 %
11 %
14 %
16 %
2000-2009
2007-2009
2007
2008
2009
(n=952)
(n=329)
(n=128)
(n=99)
(n=102)
0%
BIP-prosjekter med oppstart 2000-2009
9.9.2011
21
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
9.9.2011
25
211
52
(+36
applications)
22
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23
Assessment of socioeconomic benefits – long term –
externalities – market spillovers
Cost savings or quality improvements in
other firms
25 %
Increased benefits for consumers and endusers
31 %
Score 6 - 7
Diffusion of knowledge through co-operation
8%
and labour mobility
Score 4 - 5
Score 1 - 3
Diffusion of technology through patents or
imitation
Not relevant
Don't know
Environmental improvement
17 %
Overall benefits to others
26 %
0%
20 %
40 %
60 %
80 %
100 %
Research findings and know-how from the project
known to others – long term – knowledge spillover
100 %
80 %
60 %
Don't know
Score 1 - 3
Score 4 - 5
Score 6 - 7
40 %
38 %
20 %
19 %
0%
Research findings
Know-how
The R&D projects importance to company
development (long term – 8 yrs)
22 %
Growth
Survival
20 %
Competitive power
36 %
Productivity
Score 4 - 5
Score 3
18 %
Development of expertise
Score 1 - 2
67 %
Not relevant
47 %
New technology
Collaboration with R&D institutions
45 %
Collaboration with other companies
32 %
0%
20 %
40 %
60 %
80 %
100 %
Assessment of input additionality – start up
100 %
80 %
60 %
40 %
Don't know
45 %
48 %
50 %
2000-08
2006-08
52 %
55 %
45 %
High
20 %
0%
1995-2008
2006
Low
Medium
2007
2008
Asssessment of behavioural additionality – start up
67 %
Realization of the project
Development of collaboration with R&D
institutions
47 %
Development of R&D collaboration with
other companies
32 %
Score 6 - 7
Score 4 - 5
Score 1 - 3
24 %
Diffusion of R&D results
Not relevant
Don't know
25 %
From short to long term R&D effort
Possibility of larger projects or wider scope
in R&D effort
44 %
Upgrading internal R&D expertise (2008)
44 %
0%
20 %
40 %
60 %
80 %
100 %
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