The Public and Private Sectors in the Process of Innovation: Theory and Evidence from the Mouse Genetics Revolution

Abstract

How do public and private researchers respond to a breakthrough inducing new research opportunities? Modeling the process of step-by-step innovation as a control rights problem, this paper evaluates comparative research strategies of public versus private researchers as they respond to a common breakthrough that induces many potential follow-on research paths. While the opportunity may be common to all researchers, differences in the degree of freedom afforded researchers results in the endogenous sorting of research projects; as a result, public and private researchers will produce distinctive research outputs, as measured by publications and patents.