Diamond AM "The Economics of Science" Knowledge and Policy The International Journal of Knowledge Transfer and ltilization, Summer/Fall 1996, Vol. 9, Nos. 2 & 3, pp. 6-49.

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Arthur M. Diamond :   adiamond at mail.unomaha.edu

AUTHOR Arthur M. Diamond
TITLE The Economics of Science
JOURNAL Knowledge and Policy The International Journal of Knowledge Transfer
and ltilization, Summer/Fall 1996, Vol. 9, Nos. 2 & 3, pp. 6-49.

Full text available at :
http://cba.unomaha.edu/faculty/adiamond/web/DiamondPDFs/EconScience.pdf

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EXCERPT FROM THE PAPER:

The Economics of Science
Arthur M. Diamond, Jr.

Increasing the ”truth per dollar” of money spent on science is one
legitimate long-run goal of the economics of science. But before this goal
can be achieved, we need to increase our knowledge of the successes and
failures of past and current reward structures of science. This essay
reviews what economists have learned about the behavior of scientists and
the reward structure of science. One important use of such knowledge will be
to help policy-makers create a reward structure that is more efficient in
the future.

Introduction
George Stigler has noted (1982a:112) that the scientific study of scientists
has been mainly undertaken by sociologists rather than by economists --
there is an organized subdiscipline of sociology called ”the sociology of
science” (Mulkay, 1980), but no organized subdiscipline of economics called
”the economics of science.” The scarcity of work on this topic is surprising
since the tools of economics might contribute to the understanding of the
behavior of scientists in several ways.

The primary thesis of this review essay will be that the economist’s utility
maximizing model of human behavior and econometric tools for analyzing data
are necessary for anyone who hop1.s to have a complete understanding of the
advance of science and the behavior of scientists.

Although I hope that this essay will be useful to economists, it is written
to be accessible to non-economists. The essay will have several related
goals. One will be to survey the literature and to examine how far
economists have come in understanding science. A second will be to integrate
what non-economists and economists have learned about the reward structure
of science (including my own research on the economic value of citations and
on the career consequences to scientists of having chosen a mistaken
research project). A third will be to idmtify the areas where work remains
to be done.

Following Milton Friedman’s (1966) famous distinction between ”positive” and
”normative” economics, this research wil1 focus mainly on the "positive"
side. Positive economics is the part of economics that focuses on
descriptive and causal knowledge as opposed to explicit policy
prescriptions. Stigler sometimes justified a focus on positive economics by
saying that whether you are a firefighter or an incendiary, you still need
to know what causes fire. The justification for the focus on positive
economics in this essay is partly that it allows the project to be narrowed
sufficiently so that it is tractable. But, mainly, the justification is my
belief that only limited progress can be made on normative or prescriptive
issues until a firmer analytic and descriptive foundation has been laid.
More concretely, we are more likely to effectively reform scientific
institutions (or methodologies) when we have a clearer understanding of
which institutions (or methodologies) have been successful in the past.

The case studies that are discussed by the historian, the anthropologist,
and by some sociologists, are important for laying a firm positive
foundation. But the economist's models of individual and institutional
behavior and the economist's tools of systematic data analysis also have
something important to contribute.

Another interpretation of "economics of science" that will largely be absent
from the current research is what might be called "economic impact
analysis'' of particular (and usually controversial) scientific or technical
developments. A primary exemplar of a study that makes use of economics in
this way is reported by Busch and his colleagues in Plants, Power, and
Profit (1991). While such work is undeniably valuable, it is different from
what I propose to undertake here. Busch is using economics to understand the
impact of some "Scientific results," while we are using economics to
understand "scientists" and "scientific" institutions.

The review essay begins with a survey of the existing literature on economic
explanations of the behavior of scientists and scientific institutions. The
human capital and implicit contracts literatures of the behavior of
scientists are discussed, the latter elaborated in terms of the issue of
tenure. The most common theoretical economic analysis of the university is
the view that it is best thought of as a nonprofit organization. Variants of
this view are discussed, with special attention to the literature on
rent-seeking in academe.

In the second broad section of the essay, the econometric literature on the
economics of science is discussed in the areas of scientific institutions,
scientific production and earnings functions, and the earnings and status of
minority scientists.

The best known and appreciated research in the economics of science concerns
issues of how science contributes to technology and economic growth. Theory,
case studies and systematic econometric analysis have all been brought to
bear on these issues. Although we will sketch some of the highlights of this
literature in the third broad section of the essay, we will not do the
literature justice. To fully and fairly survey this literature is not
possible because of the space it would require, and perhaps not necessary
because the literature is already visible.