Public economics

Welfare

General equilibrium theory

Epistemology

Private sector

Economy

Philosophy

Macroeconomics

Public sector

Library science

Economics

Microeconomics

Endogenous growth theory

Human capital

Applied research

Basic research

Market economy

Industrial organization

Computer science

Economic growth

Subsidy

The Review of Economic Studies

This article introduces a general equilibrium model of endogenous technical change through basic and applied research. Basic research differs from applied research in the nature and the magnitude of the generated spillovers. We propose a novel way of empirically identifying these spillovers and embed them in a framework with private firms and a public research sector. After characterizing the equilibrium, we estimate our model using micro-level data on research expenditures by French firms. Our key finding is that uniform research subsidies can accentuate the dynamic misallocation in the economy by oversubsidizing applied research. Policies geared towards public basic research and its interaction with the private sector are significantly welfare-improving.

Back to Basics: Basic Research Spillovers, Innovation Policy, and Growth