Fact of the Week: The Ratio of Societal to Private Returns From Investment in R&D Increased From 3:1 in 1980 to 4:1 in 2015

July 9, 2018

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It is well established that business R&D investments produce benefits not just for the company making them, but for the overall society due to knowledge spillovers. Such spillovers mean that businesses underinvest in R&D from a societal perspective. They are also the main reason why governments provide incentives for the private sector to invest more in R&D.

New economic research finds that in the United States society captured four-fifths of the total returns (with the private sector gaining one-fifth) in the 2010s, up from three-fourths in the 1980s. This research underscores the importance of stronger incentives, like the R&D tax credit and the “innovation box” if societies are to reduce the underinvestment in R&D.