Transaction Costs, Fads, and Politically Motivated

Research is a productive activity where the primary outputs are innovations or intellectual property and the major inputs (in most cases) are services of human or intellectual capital. Innovations are primary sources of economic growth (Romer 1990, 1994; Huffman and Evenson 1993; Griliches 1990, 1994) and have large social rates of return (Huffman and Evenson 1993; Adams 1990). Research as a production activity involves output uncertainty. For research in general and pretechnology sciences, the uncertainty is so great that no exact output can be defined. Ex ante ou^ut is not contractible. For research in applied sciences, the uncertamty is less because specific innovations can be identified. For example, a specific drug, machine, or chemical is contractible. However, the quality or specific attributes of the innovation are uncertain. Most of the innovations from research in the general and pretechnology sciences are pure public goods while a few are impure public goods (see Huffman and Evenson 1993, Chapter 2). In applied scientific research, the proportions of public and private goods are reversed. Impure publi