Stories from the Frontier

Should basic research be publicly or privately funded? This paper studies the impact
of the shift in the U.S. patent system towards the patentability and commercialization
of the basic R&D undertaken by universities during the early 1980s. We interpret this
change as rendering universities responsive to "market" forces. Prior to 1980, universities undertook research using an exogenous stock of researchers motivated by "curiosity." After 1980, universities patent their research and behave as private firms. This move, in a context of two-stage inventions (basic and applied research) has an a priori ambiguous effect on innovation and welfare. We build a Schumpeterian model and match it to the data to assess this important turning point from an innovation as well from a welfare-enhancing perspective.