Wider economic impacts from RD investments Arild Hervik

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Wider economic impacts from R&D investments Arild Hervik Research seminar 7. 12. 2011

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

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

The important elements in R&D policy in most countries • Fiscal incentives like the tax incentive system Skatte. FUNN • 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

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

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

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

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

• 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 • 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

C Social rate of return (profits of all firms plus benefits to consumers) B D A Poor prospects • 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

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

Plans for commercialization of R&D projects – long term

Calculated net present values based on estimates from companies – long term

Calculated net present values based on estimates from companies – long term

Socioeconomic effects from 709 projects (1996 – 2005)

Socioeconomic effects from 709 projects (1996 – 2005)

Population of 820 user-driven innovation projects Research Council of Norway Grants 2. 5 bn

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 userdriven 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 • Ph. Ds • Other firm’s knowledge • 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

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 • 7. 12. 2011 16

Firms estimation of project success – ex post • 7. 12. 2011 16

Success ex post - regression Dependent variable Number of observations Non missing observations Missing

Success ex post - regression Dependent variable Number of observations Non missing observations Missing observations Adjusted R 2 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 17

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Project impact on firm development ex post regression Dependent variable Number of observations Non

Project impact on firm development ex post regression Dependent variable Number of observations Non missing observations Missing observations Adjusted R 2 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 t-value 3, 40 7, 56 11, 52 10, 78 14, 39 Pr > |t| 0, 0007 < 0, 0001 19

Firms satisfaction with performance and results long term R&D (red) and commercialization (blue) 9.

Firms satisfaction with performance and results long term R&D (red) and commercialization (blue) 9. 9. 2011 20

Research level of projects – firms judgement 9. 9. 2011 21

Research level of projects – firms judgement 9. 9. 2011 21

External effects (Ph. D, publications and patents) long term Long term measurements of R&D-projects,

External effects (Ph. D, publications and patents) long term Long term measurements of R&D-projects, terminated 2005 -2006 (n=102) Ph. D (#) 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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Assessment of socioeconomic benefits – long term – externalities – market spillovers

Assessment of socioeconomic benefits – long term – externalities – market spillovers

Research findings and know-how from the project known to others – long term –

Research findings and know-how from the project known to others – long term – knowledge spillover

The R&D projects importance to company development (long term – 8 yrs)

The R&D projects importance to company development (long term – 8 yrs)

Assessment of input additionality – start up

Assessment of input additionality – start up

Asssessment of behavioural additionality – start up

Asssessment of behavioural additionality – start up

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