THE BENEFIT AND COST OF GOVERNMENT SUPPORT FOR RESEARCH AND DEVELOPMENT: A CASE STUDY.

In this paper we ,have approached the problem by estimating ex post the social benefits resulting from the support given by the National Research Development Corporation (N.R.D.C.) to the development of a potato harvester. In doing this we have encountered difficulties of estimation and we have gained some insight into the real problems which one would face if one had been trying to foresee these developments ex ante. Obviously each project would present its own set of problems in estimating future benefits, but the conceptual similarities in these problems made the study of a particular project useful. The paper has shown that in certain cases and under certain assumptions a monetary value can be put on the national benefits arising from innovation--the net benefits to purchasers and royalty income to public bodies. Detailed analysis showed that: (a) Royalty income (the private gain to the public bodies) from the successful innovation covered direct expenditure on it. (b) Royalty income was quite inadequate to cover also expenditure on failures, which are a feature of the overall process of innovation. (c) If the net benefits to farmers are included, then public support for this series of inventions seems justified. (d) Although an arbitrary assumption was made about the time saved due to N.R.D.C., it revealed the importance of rapid development of innovation. If the N.I.A.E. potato harvester had been delayed longer than about two years beyond what actually occurred we are doubtful whether the firm would have found the investment worthwhile. (e) By the time the bulk of royalties had been received interest charges formed a large part (52%) of the cumulative cost: first costs were incurred about 10 years before first benefits were received. [ABSTRACT FROM AUTHOR]