A TECHNOLOGICAL COMMUNICATIONS COSTS MODEL OF RESEARCH-AND-DEVELOPMENT CONSORTIA AS PUBLIC-POLICY

For complex technologies, the process of innovation and diffusion often requires close cooperation among people, for learning what one another know. The social and political context of those links among researchers is an important determinant of their efficiency. Where there are social and political barriers to those links, free-market structures are not well suited to minimizing the costs of the communication of technological information. The paper develops a technological communications costs market failure model of R&D results as impure public goods. It shows how the design of the European R&D consortia-promoting public policies, Esprit and Eureka, helps firms overcome the market failures described by the model. The analysis expands the traditional market failure justifications for a government role in industrial R&D. Governments can play a positive economic role by helping firms overcome social and political barriers to negotiations and technological communications. Yet, market failure arguments are not alone sufficient for policymaking. So, the paper considers the Esprit and Eureka policy designs in a political context as model policy tools for organizing public support for industrial R&D. © 1991.