Abstract:
Much of academic research has been criticized for not being socially useful. Governments sometimes only fund research on particular social issues (e.g., vaccines, renewable energy, electric vehicles). In other cases, they fund research on topics that are independently chosen by scholars. I consider a model in which the value of current research depends on random states in the future. Scientists and a government are uncertain about the future state and thus the future value of current research. The government and scientists get independent and imperfect but informative signals about the future value of research. The government can direct the research of scientists or give them the freedom to choose their research projects (i.e., non-directed research). Even if the government maximizes the social welfare of directed research, scientists do not have better information, and scientists do not maximize the social welfare of their (non-directed) research projects, I show that non-directed research results in a bigger social welfare than directed research. If the accuracy of the signal of the social value of research is high or the two future states are sufficiently different, non-directed research gives a higher social welfare than directed research.
