One of the most important and cost effective ways that rich countries can help poor countries is to invest more in R&D, especially in products that would benefit the poor (such as a malaria vaccine, cheap solar panels, or a cassava plant resistant to mosaic virus). We do have large research programmes; and I took part yesterday in an interesting discussion about whether we should fund such research by paying the researchers directly, or whether we should create financial incentives for the private sector to invest its own money in looking for solutions.
My conclusion is that we need a judicious combination of "push" funding (e.g. subsidies to research institutes) and "pull" funding (e.g. guaranteed markets, or prizes). Push funding is especially useful for R&D that produces basic science of general value which cannot be mainly appropriated by a firm through the sale of products; pull mechanisms are more efficient for R&D that is specific to a particular product.
David Wessell has an interesting article in the Wall Street Journal on January 25th the use of prizes to spur innovation. I thought this was particularly interesting:
One surprise: The further the problem was from a solver's expertise, the more likely he or she was to solve it. It turns out that outsiders look through a completely different lens. Toxicologists were stumped by the significance of pathology observed in a study; within weeks after broadcasting it, a Ph.D. in crystallography offered a solution that hadn't occurred to them.
One of the merits of prizes over government-directed research is that they encourage engagement by a more diverse range of investigators than would be likely to be supported by cautious and risk averse bureaucrats. This finding suggests that might be rather important.
Full text of WSJ article below the fold.
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