Public/private partnerships: stimulating competition in a dynamic market

This paper sets forth a public/private partnership competition policy that mitigates the appropriability problems associated with innovation that occur in a dynamic market when competitive pressures are present. We illustrate the applicability of our policy proposal using the results from an analysis of research projects jointly funded by the Advanced Technology Program (ATP) and the private partners. Our analysis illustrates that in the absence of ATP funding these projects would not have been undertaken by private-sector firms, and that the social rate of return from the projects is substantial. We also posit a mechanism whereby ATP, or any public agency, can partner with industry to ensure that its public funds are being efficiently allocated. (C) 2001 Elsevier Science B.V. All rights reserved.