Microeconomic Policy and Technological Change

My assigned topic is the question: Can policymakers spur or deter technological change? The question is to be addressed from a micro perspective, by examining policies regarding research and development (R&D), patents, and competition. Since there is no point in keeping the reader in suspense, I shall argue that government policy plays a major role in influencing the rate of technological change in many important industries. The paper begins by looking at the salient features of federal support of R&D activities in the private sector of the economy. The next two sections take up the rationale for federal support of R&D and then consider whether, on a priori grounds, it is possible to say with any reasonable degree of certainty that underinvestment in R&D occurs in particular parts of the private sector. Measures of the social benefits from new technology are then taken up, with particular emphasis on the social rate of return from investments in new technology. The gap between social and private rates of return from investments in new technology is also discussed. Building on the previous results, I then put forth five guidelines regarding public policy toward civilian technology. These guidelines are not new, but I believe that they are just as applicable today as they were when first presented 20 years ago. The final sections of the paper take up the patent system and antitrust policy, two areas continually subject to attention and controversy.