Financing public research to stimulate private innovation?

Science sometimes advances by leaps and bounds. In December 2019, an unknown disease appears in Wuhan. A year later, pharmaceutical companies brought the first vaccines to market. A feat made possible by the massive financial commitment of governments and philanthropic foundations. Public money is often a powerful driver of industrial innovation. But how best to distribute it? Should companies be subsidized directly, for example through tax credits for private R&D? Or is it more useful to focus on public research, betting on its indirect spin-offs? 

Four economists have decided to tackle this question head-on, by analyzing a major French policy: the creation of Laboratoires d'excellence (LabEx) in the early 2010s.

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Dialogues économiques is a digital journal published by the Aix-Marseille School of Economics (AMU, CNRS, EHESS, Centrale Méditerranée). A gateway between academic research and society, Dialogues économiques provides all citizens with the keys to economic reasoning. Articles are published every two weeks.

1.5 billion euros for excellence

In 2010, France is taking an ambitious gamble: 1.5 billion euros have been earmarked to strengthen its public-sector laboratories and raise them to the highest international level. To apply, laboratories must form clusters called LabEx (Laboratoires d'Excellence), propose a scientific project and convince an international jury. Following two rounds of selection (in 2010 and 2011), 170 LabEx were created.

Has this massive funding of public research led to an increase in private R&D spending? To answer this question, it would be ideal to be able to conduct a laboratory experiment - like Pasteur, injecting a vaccine into a group of sheep, and comparing them with an untreated group. In our case, this would mean setting up two groups of companies with equivalent characteristics. One group would be subject to the influence of LabEx, the other not, and their R&D effort would be compared. But it's impossible to set up such an experimental protocol: how can we exclude certain manufacturers from the influence of research laboratories? The team of economists therefore adopted a different strategy.