The changing rationale for public funding
Aldo Geuna
SPRU-University of Sussex
&
Politecnico di Torino
DIMETIC, PECS, JULY 2007
Content
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Traditional rationale: Post-WWII approach.
Changing characteristics of university
research.
New rationale: Contractual-oriented
approach.
Unintended consequences.
Post-WWII Rationale
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The post-1945 rationale
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Public good
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Linear process
Budgetary expansion
Academic quality increasing with funding
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Ex-ante judgement of research promises
Evaluation by academic community
Market-failure - Public good
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Nelson (1959) and Arrow (1962) laid foundations
of economics of science
Emphasised certain characteristics of scientific
knowledge as a public good:
non-rival – others can use the knowledge without detracting
from the knowledge of the producers
– non-excludable – other firms cannot be stopped from using
the information
MORE
– expansibility - The possibilities of multiple transfers make it
possible to distribute information very widely without loss.
=>
– Non-appropriable at least completely (see patents).
–
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Market-failure - Public good
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Also long timescale of basic research while firms
usually have short-term investment perspective
Private benefits less than social benefits
Social benefits also wider than private benefits
–
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Firms would not have invested in research on e.g. smokingcancer link, ozone hole, global warming
Firms therefore tend to under-invest in research
(less than socially optimal – free riding)
Market-failure - Public good
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To raise research funding to socially optimum level,
government needs to invest
Main product from govt-funded research = economically
useful information, freely available to all
By increasing funds for basic research, govt can expand
the pool of economically useful information
This information published – assumed to be durable and
costless to use
Close connection between university teaching and
research means universities also produce graduates with
up-to-date knowledge and skills
Linear model
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Scientific discoveries in early 20th Century & WW2
 belief in linear model of innovation
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Basic research  App. res.  Devlpt  Innovation
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Government responsibility = to fund basic research
– will eventually  wealth, health & nat. security
Contract not very explicit re exact form of benefits
nor when
Used to justify substantial increases in gov’t
funding
Viewed as investment in future welfare
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V Bush ‘Social Contract’: The endless
frontier
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Science also seen as inherently unpredictable
(‘serendipity’), ex-ante judgment.
Scientists in best position to judge which research
best to fund.
Essential characteristics of V Bush social contract
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high level of autonomy – few strings attached
institutionalisation of peer review to allocate funds
belief that basic research best done in universities
Main funding mechanisms
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Institutional core funding for universities (not US) –
general university funding (GUF)
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Project funding
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block grant for teaching and research
allocated on incremental or formula basis
provides funding for research infrastructure (labs, equipments,
technicians, libraries etc.) – “the well found laboratory”
for specific research projects – additional costs
proposals submitted – ‘responsive mode’
judged by peer review
funding decision by committee of scientists (often disciplinebased)
What about mission-oriented
research?
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Ignores university research funded by government
departments and ‘mission-oriented’ agencies
–
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Areas chosen reflected political priorities - ‘demand-pull’ model
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US – defence, space, health
Japan – agriculture, energy
UK – defence, aerospace
France – defence, nuclear energy
‘Mission-oriented research’ (cf. curiosity-oriented’)
–
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e.g. defence, health, energy, agriculture, space
very large funding (especially in US but also UK and F)
not just confined to technical universities
Changing characteristics of
university research.
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Changes in 1980s – 1990s
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Driving forces
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Economic problems (recession, inflation,1970s)
Growing costs of welfare state – health, education, social
security
Liberal versus social-democratic views of government (new
public management; the EURO)
Globalisation and growing economic competition
Growing importance of scientific and technological
knowledge – the ‘knowledge economy’
‘Massification’ of HE
Growing cost of research
Changing public research systems
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Governments introduced new/revised policies:
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To enhance quality and efficiency of public
research;
To stimulate business investment in research;
To strengthen research links/collaboration
between public and private sectors (e.g. U-I, scindustry);
To increase supply of QSEs;
Changing public research systems
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To adapt to needs of service sector (increasingly
important in OECD countries);
To achieve a target level of R&D spending (e.g.
3% in EU);
To fund research in priority fields;
To stimulate public understanding/engagement.
Changing public research systems
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Reforms aiming to make the contribution of
public research systems more effectively to
innovation (were they successful?):
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Universities given increased autonomy and/or
transformed into quasi-private agencies (e.g. Italy,
Japan, Denmark, Slovak Republic);
Decreased reliance on block funding and more on
competitive project funds;
More emphasis on evaluation of HEIs and PROs
(RAE early developed in the Uk/NL);
Changing public research systems
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More emphasis on mobility of students and
researchers;
Encouragement to protect and exploit intellectual
property (IP);
Changes to IPR for universities and public
research organisations (e.g. Germany, Denmark,
Norway, Switzerland)
Technology/knowledge transfer made formal ‘third
mission’ of universities (e.g. UK, Denmark,
Norway)
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Growth in patents during 1990s although slowed since
2000 (see role play)
Changing roles of university
1. To reproduce and transmit existing knowledge.
2. To improve critical reasoning and other skills
of individuals:
(i) as input to their work;
(ii) to develop democratic, civilised society.
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3.
To increase knowledge base:
(i) by pursuing knowledge ‘for its own sake’;
(ii) by developing useful knowledge.
4.
To serve training and research support needs of
economy (at regional and national levels).
New rationale: Contractual-oriented
approach
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The contractual-oriented approach 1
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Implementation:
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Competitive mechanisms for resource allocation
Financial quasi-market incentives to steer
university behaviour to meet societal needs and
increase efficiency
Policies to increase selectivity and
concentration
GUF declined in relative terms, and in some
cases (e.g. UK, Australia) now allocated on basis
of performance
The contractual-oriented approach 2
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Project-based funding increased in importance
Shift from responsive mode to directed
programmes and to research linked to needs of
‘users’
Growing emphasis on ex post evaluation
New government funding initiatives based on
‘challenges’ and competition e.g. Joint
Infrastructure Fund
The contractual-oriented approach 3
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Implicit assumptions
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Possible to evaluate quality of research output
reliably
Possible to identify most promising research
avenues
Costs can be reduced without sacrificing quality
Due to existence of economies of scale and
scope, concentration increases output of overall
system
Admin and other costs associated with more
competitive system are small cf. benefits
Unintended consequences
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Unintended consequences
of the new rationale
1. Increased concentration of resources
2. Disproportionate incentives for short-term
research
3. Conflicting incentive structures
4. Exacerbation of ‘Matthew effect’
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Increased concentration of resources
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Resources increasingly concentrated in few
leading research universities (and M&A)
Implicit assumption that there are economies of
scale/scope
But no strong empirical evidence for economies
of scale/scope in university production
–
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Either for research itself at level of department or institution
(but ‘critical mass’ effect at level of group)
Or for joint production of teaching and research
Some scale economies for teaching and admin, and hence
perhaps indirect benefits for research
Increased concentration of resources
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Adverse consequences
–
Fewer resources in lower ranked departments/
institutions to support new ideas and new people;
decreased diversity may be detrimental to
research in longer term, even if more ‘efficient’ in
short term
What about mobility of students and researchers?
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Increased concentration of resources
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Lower ranked institutions less able to contribute to
meeting regional needs
Temptation to undercharge, bidding for funds on
added rather than full-cost basis – driving down
prices to detriment of universities (become
financially overstretched, staff overworked);
evaluation of real opportunity costs; centrality of
overheads.
Disproportionate incentives for short-term
research
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Evaluations tend to focus on short term
e.g. publications in last few years
Emphasis on addressing needs of users
may lead to neglect of longer-term
research
Lack of incentives for long-term, pathbreaking, ‘risky’ research
Decreased variety of research lowers
probability of scientific novelty
Conflicting incentive structures
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Different competitive funding schemes may
create conflicting incentive structures
–
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Weakened teaching incentives
Traditional academic incentive structure (‘open
science’) in conflict with private-oriented
incentive structure linked to business-financed
research:
–
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e.g. high-quality publications for RAE VS helping ‘users’
Work with industry may bring problems of secrecy, delay in
publication etc.
Risk that incentive structure of subsidiary source
of funds may dominate university research
behaviour
Exacerbation of ‘Matthew effect’
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Merton (1968) – success in research brings status and
funding – further increases chances of future success
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“To them that hath shall be given” – the ‘Matthew effect’
Evidence shows very small proportion of researchers
produce large share of most influential publications
‘New economics of science’ (e.g. David) elaborated this in
terms of path-dependence and self-reinforcing
mechanisms (e.g. ‘increasing returns’)
Growing range of uncoordinated funding sources
reinforces cumulative, self-reinforcing process
Means that researchers at lower-status universities locked
into a ‘vicious circle’ as compete for resources and status
– again lowers diversity
Conclusions
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Conclusions 1
32
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Post-1945 rationale based on science-push
model – simple, convenient, very successful
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Significant changes in ~1980s (1990s/2000s
depending on the country)
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Switch to (or coexistence with) new rationale
and more explicit ‘social contract’
Conclusions 2
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Used to justify increasing investment in
research but comes with more ‘strings’
attached
Although could enabled science to be used
more effectively as input to technology and
innovation, also had important unintended
consequences
Do the benefits outweigh the costs?
P. Dasgupta, and P.A. David, 1994, Toward a New Economics of Science, Research
Policy, Vol.23, pp.487-521.
P.A. David (1997), ‘From market magic to calypso science policy: A review of
Terence Kealey' s The Economic Laws of Scientific Research’, Research Policy, 26,
pp. 229-255.
A. Geuna (1999) The Economics of Knowledge Production. Funding and the
Structure of University Research, Cheltenham: Edward Elgar
A. Geuna (2001 ), ‘The Changing Rationale for European University Research
Funding: Are there Negative Unintended Consequences’, Journal of Economic
Issues, 35, pp. 607-632.
A. Geuna, A.J. Salter and W.E. Steinmueller (eds), 2004, Science and Innovation:
Rethinking the Rationales for Funding and Governance, Cheltenham: Edward Elgar
S. Vincent-Lancrin (2006) ‘What is Changing in Academic Research? Trends and
Futures Scenarios’, European Journal of Education, 41, 2, 2006.
www.sussex.ac.uk/Users/prff0/mainpages/home.html : my home page various
articles available
1. Linear Model of Innovation
Scientific knowledge as information
Rivalrous
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Excludable
Normal goods
Apples
Dresses
TV sets
cope
Computers
A seat on an aeroplane
Non-rivalrous
(up to capacity) Art galleries
Museums
Fenced parks
Roads
Bridges
well
overuse
Free
markets
zero price
required for
efficient use
produce
less than
required
Non-excludable
Common property
Fisheries
Common land
Wildlife
Air
Public good
Defence
Police
Public information
Broadcast signals
Basic Research