Knowledge exhaustibility public support to business R&D and the additionality constraint

Recent advances of the economics of knowledge about the properties of knowledge as an economic good with the identification of the limited exhaustibility of knowledge and its positive effects in terms of diachronic knowledge externalities, question the foundations of the Arrovian postulate upon which the provision of public support to R&D activities performed by firms is based. This paper calls attention on the need to shift from the provision of public support to R&D activities aimed at reducing R&D costs to compensate firms for the losses triggered by the limited appropriability of knowledge to a public support aimed at increasing the flow of R&D activities and hence the rates of accumulation of the stock of quasi-public knowledge. A strong additionality requirement such that recipients should increase the levels of R&D performed by an amount equal or larger than the public fund is consequently advocated as a standard procedure.