A Valley of Death in the Innovation Sequence: An Economic Investigation

44 Pages Posted: 14 Feb 2008 Last revised: 27 Apr 2018

See all articles by George S. Ford

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Thomas Koutsky

USAID Global Development Lab

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: September 1, 2007

Abstract

The United States Department of Commerce, Technology Administration provided support to the Phoenix Center to study the causes and potential solutions of the Valley of Death for technology development in the United States under Study Contract No. SB1341-05-2-0023 administered by KT Consulting, Inc. While several explanations for this Valley of Death have been proffered, this Paper takes a decidedly different approach to this issue. We focus our attention on the notion that the Valley of Death is, in fact, a valley in the innovation process - an image that implies that funding for R&D projects is more readily available for basic or early-stage research (a peak) than the intermediate stages (the valley). Our economic model indicates that such a nonlinear phenomenon can only occur if noneconomic investments (such as government expenditures on basic research) are made in very early stage research without sufficient attention to the likely investment decisions at later stages of the innovation process. This is not meant to imply that government support of R&D activity is unwarranted; in fact, there are important and valid reasons for government to support R&D activity. In some respects, the Valley of Death may be an inevitable consequence of socially-valuable government intervention. An important question is whether technology policymakers should devote some attention and resources to the study of the optimal mix of government support for early-stage and intermediate-stage R&D projects. In particular, it may be possible to increase economic welfare from government R&D efforts by increasing support for intermediate stage projects or by altering the allocation of a fixed level of support between early and intermediate stages of the innovation process. Even if the current mix of funding across the stages of the innovation process is deemed optimal, it is also sensible to evaluate ways to increase technology innovation by assisting private investors in seeing projects through intermediate stages of the innovation sequence, which will bring innovations closer to commercialization and diffusion.

Keywords: Valley of Death, Innovation, Innovation Sequence, Basic Research, Funding Gap

JEL Classification: H50, H59, O31, O33, O38, O39

Suggested Citation

Ford, George S. and Koutsky, Thomas M. and Spiwak, Lawrence J., A Valley of Death in the Innovation Sequence: An Economic Investigation (September 1, 2007). Available at SSRN: https://ssrn.com/abstract=1093006 or http://dx.doi.org/10.2139/ssrn.1093006

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Thomas M. Koutsky

USAID Global Development Lab ( email )

1300 Pennsylvania Avenue NW
Washington, DC 20577
United States

Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

HOME PAGE: http://www.phoenix-center.org

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