Economics of science

Believing that science matters, economists have attempted to understand the behavior of scientists and the operation of scientific institutions.

This will result in others being able to benefit from the scientific knowledge without having to bear the cost of the research and development, which would in turn make the potential return on investment too small to incentivize participation in the market.

[2] However, certain economists argue that a non-market mechanism has developed to correct the problem of indefinable property rights, such that scientists are incentivized to produce knowledge in a socially responsible way.

Economist Paula Stephen refers to this mechanism as a reward system based primarily on a concept that she calls “priority of discovery.”[5] Robert Merton argues that the goal of scientists is to establish “priority of discovery” by being the first to report a new discovery, which then results in the reward of recognition.

When speaking about the production of scientific knowledge, the government has several options for intervening in the market to attempt to correct the failure.

In the United States, two of the most historically popular and most extensively studied options are the patent system and tax incentives.

In practice, patent law has been correlated with increased R&D expenditure, indicating that this form of government intervention is in fact incentivizing production.

[8] However, this type of government intervention does not allow particularly precise targeting of the optimal level of R&D production, and several economists argue that the benefit of 20 years of monopoly power is too high.

[2] From an economic perspective, the value of the tax incentive is that it decreases the marginal cost of the firm that is producing the scientific knowledge.

The vertical axis displays the marginal cost and benefit of each additional dollar spent on research and development.

However, the concern still remains that tax incentives exacerbate inequality by producing financial windfalls for firms that might already be very prosperous.