Policymakers often believe that if something is good, they should provide incentives for more of it. This philosophy is apparent in policies to encourage the commercialization of university technology; local, state, and federal governments are all working to spur universities to bring more inventions to market. Take, for example, the latest federal efforts: a university commercialization prize and a pledge by university administrators to expand their technology commercialization programs.
But incentives aren’t the answer to everything. Pushing universities to commercialize ever more inventions is unproductive because incentives alone don’t make people better at producing valuable inventions.
Bringing university technologies to market is clearly beneficial. We have genetic engineering, artificial skin, Google’s (GOOG) search engine, Gatorade, among many other advances, because our policymakers made it possible for universities to commercialize inventions made by their faculty members, staff, and students. In 2010, inventions at American universities resulted in 657 new products, the Association of University Technology Managers reports—nearly the same amount as in each of the previous three years.
Policymakers of various stripes argue that we should provide universities with incentives to double or even triple the number of inventions that make it to market. But just because university inventions resulted in 657 new products in 2010 doesn’t mean we can get them to double or triple the amount.
Why Encouraging More Is Not the Answer
Successful commercialization of university inventions depends on more than just incentives. It also depends on the ability to produce valuable inventions. But policymakers approach the problem as if the main obstacle is a lack of incentives. They act as if the chance for an academic inventor to earn an enormous windfall from the development of the next Google isn’t enough incentive for professors and their universities to start companies. The thought seems to be: Add some subsidies, tax incentives, and prizes to boost the potential return, and then university researchers will produce the next Google.
Trust me when I tell you that, under the current rules, no one lacks the incentive to produce another Google from university research. The real obstacle is their inability to do so. Most of us would love to invent the algorithm for the next Google, dream up the business model for the next Facebook, or play point guard for the New York Knicks. We aren’t being held back from accomplishing what Sergey Brin, Mark Zuckerberg, and Jeremy Lin pulled off by a lack of incentives, but by a lack of ability. Cut our taxes to zero, give us a subsidy, and throw in a prize and our probability of doing what they did will remain effectively zero.
What’s So Bad About Incentives to Commercialize?
Relying on incentives to get more commercialization doesn’t work very well, you might concede, but what’s the problem with having them? After all, some university professor might be able to invent the next Google algorithm. The answer is that encouraging more commercialization comes at a cost. While I can’t quantify that cost, it’s substantial. All of the effort professors put into commercializing their inventions instead of teaching courses or conducting research means less teaching and research. And universities have to pay to staff their technology licensing offices, market inventions to industry, and file for patents.
Stronger incentives to commercialize don’t suddenly make university inventions more valuable to the marketplace. But they do encourage universities to push more inventions out to industry. That means licensing more marginal technologies that don’t succeed in the marketplace. A few years ago, some academic colleagues of mine—Richard Jensen of Notre Dame and Marie and Jerry Thursby of Georgia Tech—surveyed university technology licensing officers and wrote a paper titled “Disclosure and licensing of university inventions: ‘The best we can do with the s**t we get to work with.’” The title, taken from a comment made by one of the licensing officers, sums up what happens when you give universities an incentive to commercialize additional faculty inventions but you can’t do anything to improve the quality of the inventions themselves.
Encouraging academics to be more commercial has other downsides. It gives them an incentive to shift from basic research to more applied work. One of the great contributions made by American universities is to conduct the basic research fundamental to technological advance. Because university researchers invented a way to recombine DNA, we have a biotech industry, and because they invented a way to network computers, we have the Internet.
But academics, like everyone else, respond to incentives. Reward them with more money, promotions, or fame for developing new commercial technologies instead of conducting basic research and they will do less basic research, undermining the technological advances necessary for other people to develop new products, businesses, and industries.
Providing academics with additional incentives to commercialize their research also leads some of them to make undesirable choices. Research shows that the opportunity to make serious money from the commercialization of science has led some academics to neglect their teaching responsibilities, violate conflict of interest rules, withhold publication of their research results, and act strategically in many other ways that benefit them financially at the expense of others.
When thinking about the commercialization of academic research, policymakers have succumbed to the false logic that if something is good, they just need to boost the incentives to get more of it. But additional incentives to commercialize won’t make academics better at inventing, they will merely lead universities to push out more marginal inventions, and motivate researchers to shift away from doing basic research and engage in undesirable behavior. Upping the incentives for more university technology commercialization is poor public policy.