The optimal private investment in R&D will likely be _____ the optimal social investment.

Question

Quizplus · Accepted Answer

Private investment in R&D aims to maximize profits, whereas social investment aims to maximize social welfare. Private firms will invest in R&D as long as the expected return (profits) from the research exceeds the cost of the research. However, social benefits from R&D will not be fully captured by private firms, leading to an underinvestment in R&D from a social perspective. Therefore, the optimal private investment in R&D will be less than the optimal social investment.

The Optimal Private Investment in R&D Will Likely Be _____