An Economic Model of Public Funding of Science: The Optimal Ratio of Discovery to Invention for Endogenous Growth

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: Many empirical studies support the necessity of public funding of science, but endogenous growth models do not necessarily do so. In this paper, I distinguish between investments in research and development (R&D) for “discovery” and “invention” in a framework of an endogenous growth model and show that there is the optimal ratio of discovery to invention in the sense that the highest productivity of producing knowledge is achieved. Because discovery generally does not generate profit, investments in R&D for discovery have to be publicly financed. Therefore, a government has the responsibility to maintain an optimal ratio of discovery to invention to keep the highest rate of endogenous economic growth.

Keywords: Endogenous growth; Discovery; Production of knowledge; Public funding of science; R&D (search for similar items in EconPapers)
JEL-codes: H41 O32 O33 O38 O40 (search for similar items in EconPapers)
Date: 2026-01-11
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:127672

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