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Academic Freedom, Private-Sector Focus, and the Process of Innovation

Philippe Aghion, Mathias Dewatripont and Jeremy C. Stein
The RAND Journal of Economics
Vol. 39, No. 3 (Autumn, 2008), pp. 617-635
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/25474389
Page Count: 19
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Academic Freedom, Private-Sector Focus, and the Process of Innovation
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Abstract

We develop a model that clarifies the respective advantages and disadvantages of academic and private-sector research. Rather than relying on lack of appropriability or spillovers to generate a rationale for academic research, we emphasize control-rights considerations, and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus. By serving as a precommitment mechanism that allows scientists to freely pursue their own interests, academia can be indispensable for early-stage research. At the same time, the private sector's ability to direct scientists toward higher-payoff activities makes it more attractive for later-stage research.

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