Wider economic impacts from R&D investments

Arild Hervik Research seminar7.12.2011

R&D project over 17 years budget 25 mill from RCN

• We deliver every year a report to RCN and a lot of seminars based on the analysis

• We deliver information to help the government leading expert committees

• We deliver based on our experience to other institutions like Vinnova in Sweden

• We deliver by participating in the research system

The important elements in R&D policy in most countries

• Fiscal incentives like the tax incentive system SkatteFUNN

• Direct financial support to firms or R&D institutes as strategic user driven programs

• Imperfect capital markets and IN support to innovative start ups

• Increased quality in basic university research to support innovative firms

Theoretical perspective

• Private companies underinvest in R&D because of market imperfections

• Outcome from R&D only partially appropriated by innovation firm and the rest is spill over to society - lack of incentives

• Imperfections in capital markets because of uncertainties and asymmetric information for innovative start ups - lack of means

• All countries strong focus on R&D policy

Michael Peneder (2008). The problem of private underinvestment in innovation: a policy mindmap, Technovation 28.

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Measuring wider economic impacts from user driven R&D programs

• A cost benefit approach from the Mansfield tradition • The conterfactual problem and input -, output and

behavioural additionality important • Economic benefits for R&D company estimated• Spill over effects in focus • Measurement problems and add a system of other

indicators

A module based database

• The selection module with systematic data from all projects and a final score 1-7

• Ex ante interviews and a company survey database • Ex post interviews 3 years after start up• Long run interviews 8 years after start up• Output indicators like patents , scientific articles ,

new firms , new products etc

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Firm 1R&D

NewKnowledge

Held byFirm 1

BetterProducts;

LowerCosts

ProductMarket

Competition

NewKnowledge Releasedby Firm 1

OtherFirm’s

Knowledge

BetterProducts;

LowerCosts

OtherProductMarkets

Firm 1Profits

OtherFirm’sProfit

CustomerBenefit

OtherFirm’sProfit

CustomerBenefit

• Pure Market Spillover• Plus Pure Knowledge Spillover• Plus Interaction of the Two

Economic Benefit

• Patents• Publications• Other

PrivateReturn

SpilloverGap

SocialReturn

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Social rate of return(profits of all firms plus benefits to consumers)

Private rate of return(profits of innovating firms)

Poor prospects

Marginalcommercial prospects

Goodcommercial prospects

A

B

C

D

Socioeconomic costs and benefits – indicator set

• Indicators for success within the companies• The conterfactual problem and indicators for

additionality• Indicators for private economic costs/benefits• Indicators for eksternal effects• Estimation of socioeconomic benefits

Plans for commercialization of R&D projects – long term

4 %

9 %

15 %

7 %

17 %

48 %

0 % 10 % 20 % 30 % 40 % 50 %

Don't know

Not relevant

No plans ofcommercialization

Expects commercializationwithin next five years

Expects commercializationwithin next two years

Already commercialized

Calculated net present values based on estimates from companies – long term

-500

0

500

1 000

1 500

2 000

2 500

3 000

3 500

2002 2003 2004 2005 2006 2007 2008 2009

1996-98 1999 2000 2001 2002 2003 2004 2005

Net

pre

sent

val

ue in

mill

ions

NO

K (2

009)

Net present value for all projects measuredNet present value for projects with high additionality ex ante

Year of measure

Year of completion

Socioeconomic effects from 709 projects (1996 – 2005)

6.9 b NOK

R&D efforts

Research Councilsupport

(2.1 b NOK)

Companies’ input(4.8 b NOK)

Socioeconomic returns

Private returns(expected)12.7 b NOK

Spill

over

s Marketspillover (26 %)

Knowledgespillover (38 %)

Socioeconomic returnsadjusted for additionality

High input additionality:4.0 b NOK

Indicators of spilloversadjusted for additionality:great potential in about

20 % of the R&D projects

Research Council of Norway

Supported firms8 bn NOK (including

RCN support)

Competence building

Grants 2.5 bn NOK

• Patents• Publications• PhDs• Other

Innovation of products and

processes

Market competition

Profit in firms undertaking

user-driven R&D

Population of820 user-driven

innovation projects Indicators from long-term assessment; four years after project completion

Great significance in 65 % of the projects

Pecuniary effects *

Other firm’s knowledge Innovation Other product

markets

Other firm’s profit

Customer benefits

Expected NPV 14.8 bn NOK in 41 % of the projects

Significant in 30 % of the projects

* Customer benefits; including cost savings and quality improvements for corporate customers, and consumer benefits

Realized 900 innovations in 65 % of the projects

Significant in 40 % of the projects

Knowledge spillover

Other firm’s profit

(Percentages based on interviews of 465 projects in the population)

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The indicator approach

• The private profit compensates for all the projects that never reached the market

• A few projects (20) have 80% of the profit• Project owners estimates market and knowledge

spillovers.• The indicator approach do not result in one figure. It

gives an indication that the portfolio have a positive socioeconomic effect in a broad context.

Firms estimation of project success – ex post

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17

Success ex post - regression

Dependent variable Total estimation of project success

Number of observations 725Non missing observations 517Missing observations 208

Adjusted R2 0,7467

Coefficient t-value Pr > |t|Constant term -0,29 -1,65 0,0997Co-operation and network building 0,30 11,21 < 0,0001Competence building 0,26 6,83 < 0,0001Technological results 0,27 9,5 < 0,0001Financial performance 0,23 11,71 < 0,0001

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19

Project impact on firm development ex post - regression

Dependent variable Total estimation of project impact

Number of observations 725Non missing observations 554Missing observations 171

Adjusted R2 0,8564

Coefficient t-value Pr > |t|Constant term 0,31 3,40 0,0007Co-operation and network building 0,15 7,56 < 0,0001Competence building 0,32 11,52 < 0,0001Technological results 0,25 10,78 < 0,0001Financial performance 0,25 14,39 < 0,0001

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20

Firms satisfaction with performance and results long term R&D (red) and commercialization (blue)

9.9.2011

25 %

61 %

9 %4 %

1 %7 %

37 %

28 %

12 %5 % 6 % 6 %

0 %

20 %

40 %

60 %

80 %

100 %

Svært fornøyd Fornøyd Nøytral Misfornøyd Svært misfornøyd

Vet ikke Ikke relevant

Langsiktig resultatmåling av BIP-prosjekter med avslutning 2005-2006

Forskningsmessige og kommersielle resultater (n=103)

Forskningsmessige prestasjoner og resultater Kommersielle prestasjoner og resultater

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Research level of projects – firms judgement

9.9.2011

12 % 13 % 11 % 14 % 16 %

25 % 27 %

16 %

36 % 32 %

30 %28 %

32 %

24 % 26 %

29 % 27 %40 %

18 % 19 %

5 % 5 % 7 % 7 %

0 %

20 %

40 %

60 %

80 %

100 %

2000-2009 2007-2009 2007 2008 2009

(n=952) (n=329) (n=128) (n=99) (n=102)BIP-prosjekter med oppstart 2000-2009

Forskningsinnhold i prosjektene vurdert av bedriftene

Score 1-3

Score 4 (Anvendt forskning)

Score 5

Score 6

Score 7 (Front/leading edge)

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External effects (PhD, publications and patents) - long term

Long term measurements of R&D-projects, terminated 2005-2006 (n=102)

PhD (#)Publications

w/referee (#) Patent (#)

Expectations - PROVIS 27 - -

Reports from firms (tellekanter) at closing 7 70 30

Reports from firms 4 yrs later 25 21152

(+36 applications)

9.9.2011

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Assessment of socioeconomic benefits – long term – externalities – market spillovers

25 %

31 %

17 %

26 %

8 %

0 % 20 % 40 % 60 % 80 % 100 %

Cost savings or quality improvements inother firms

Increased benefits for consumers and end-users

Diffusion of knowledge through co-operationand labour mobility

Diffusion of technology through patents orimitation

Environmental improvement

Overall benefits to others

Score 6 - 7Score 4 - 5Score 1 - 3Not relevantDon't know

Research findings and know-how from the project known to others – long term – knowledge spillover

38 %

19 %

0 %

20 %

40 %

60 %

80 %

100 %

Research findings Know-how

Don't knowScore 1 - 3Score 4 - 5Score 6 - 7

The R&D projects importance to company development (long term – 8 yrs)

22 %

20 %

36 %

18 %

67 %

47 %

45 %

32 %

0 % 20 % 40 % 60 % 80 % 100 %

Growth

Survival

Competitive power

Productivity

Development of expertise

New technology

Collaboration with R&D institutions

Collaboration with other companies

Score 4 - 5Score 3Score 1 - 2Not relevant

Assessment of input additionality – start up

45 %48 %

45 %

52 %55 %

50 %

0 %

20 %

40 %

60 %

80 %

100 %

1995-2008 2000-08 2006-08 2006 2007 2008

Don't knowLowMediumHigh

Asssessment of behavioural additionality – start up

67 %

47 %

32 %

24 %

25 %

44 %

44 %

0 % 20 % 40 % 60 % 80 % 100 %

Realization of the project

Development of collaboration with R&Dinstitutions

Development of R&D collaboration withother companies

Diffusion of R&D results

From short to long term R&D effort

Possibility of larger projects or wider scopein R&D effort

Upgrading internal R&D expertise (2008)

Score 6 - 7Score 4 - 5Score 1 - 3Not relevantDon't know

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