A Note on Socially Optimal R&D Programs and Their Inducement

This paper considers optimal public policies regarding R&D programs in a random environment. For a stochastic R&D decision model without rivalry, we investigate and derive the privately and the socially optimal policies. The study focuses on the socially optimal R&D program and its inducement by governmental incentives. The appropriate instruments that should be employed in supporting R&D projects are examined. Our proposed R&D model provides a theoretical economic justification for public intervention in support of private R&D activities. Furthermore, some of the results shed light on practical issues in designing a functional and efficient R&D project support system.