Risk, Research Funding Rules, and Social Welfare

University Of California-San Diego, La Jolla CA

Investigators

Abstract

The rules governing the public funding of science tend to downplay an extensive literature in economics and finance regarding the balance of risk and return in designing portfolios. This project develops measures that quantify the importance of project riskiness in selecting research portfolios that appropriately balance incremental and breakthrough scientific innovation in order to improve social welfare. Findings speak directly to ongoing debates about the innovativeness of the current funding system of public science funding institutions and provide valuable insights for private research-intensive firms in a wide range of sectors within the U.S., many of whom are currently worried about how to maintain their scientific edge in the face of enormous investments elsewhere in the world. To estimate research portfolio choices and the implicit weights that respondents place on various features of those portfolios this project uses stated preference surveys and econometric techniques designed for use with discrete choice experiments. A diverse respondent pool - elite life scientists, mid-career life scientists, life science postdocs, and MBA students - elucidates the role of incentives and experience in shaping preferred allocation rules. Experimental variation in the scarcity of research funds also provides valuable information about how tradeoffs between risk and return are impacted by the potential scale and scope of research projects under evaluation.