Academic Freedom, Private-Sector Focus, and the Process of Innovation

The authors develop a model that clarifies the respective advantages and disadvantages of academic and private-sector research. Results indicate that by serving as a precommitment mechanism that allows scientists to freely pursue their own interests, academia can be indispensable for early-stage research. At the same time, the private sector’s ability to direct scientists towards higher-payoff activities makes it more attractive for later-stage research.