Encouraging Research: Taking Politics out of R&D

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This paper assesses the strategy and efficacy of giving corporations direct grants to support innovative research. Federal payments to these corporations are commonly referred to as “corporate welfare.” This method of financing innovation is unsuccessful because

  • An offer of grants creates a “moral hazard” for the industry
  • Government should not pick winners and losers, because the premise that they can is questionable
  • The projects supported by federal grants are those likely to find private investors