Also available on Charlie's Angel: project.

Hotspots: Basic Research

The issue with basic research is clear: there exist spillover effects which make basic research valuable to society as a whole and as such make it impossible for it to be funded properly by markets alone.  This effect on third parties (neither buyer nor producer of a good) of the production of a good is known as an externality.  Three externalities are identified by the ATP in their report Economic Analysis of Research Spillovers Implications for the Advanced Technology Project.  The first is knowledge spillover, which means the way that developments achieved by one company stimulate research and development within other companies in that industry even without communication of the results of the research.  The way this works is that any company, despite not having specific knowledge of the results of a competitor company's advanced research, can observe the avenues of their competitor's research and, by knowing what avenues are promising, accelerate their own research efforts.  Market spillover is the effect that consumers benefit from the introduction of advanced products whether or not they choose to buy them, as the introduction of the products inevitably changes the market to the advantage of the customer.  Network spillover is the name that the ATP gives to the benefits afforded producers and consumers of technology due to the ability of producers to build on existing technologies to deliver their own solutions faster and more cheaply.

These effects seem relatively uncontroversial, so the question then becomes what is the effect of these externalities?

Knowing this we want to subsidize research.

Basic Research Subsidies
Further issues:
Difficulty in long-term planning
Difficulty for research without direct application
Capitalization: mechanisms for government support
Educational base

Next: Universal Access.