The study estimates that for every euro that is spent on this fiscal instrument, R&D investment has
increased with 1.02 euro. Interpretation of this result is two-sided. On one hand, effectiveness of 2%
seems low and because the fiscal stimulus is available to all companies there will be a certain amount of
dead weight loss insofar companies would otherwise also have invested in R&D. On the other hand, total
R&D investment increases, which means that the fiscal subsidy did not crowd out private investment and
may have catalyzed investments which would otherwise not have occurred. Finally, a general measure
directed at all companies could turn out to be more efficient than a measure directed towards specific
types of companies or industries, because the latter suffers from government failure of making wrong
selections as a result of information problems.
b) More cooperation between companies and public knowledge centres
Another important area that Dutch innovation policy focuses on is stimulating interaction between
private companies and knowledge centres and the use of fundamental research. This can have several
effects. First of all, fundamental research creates external effects in the form of knowledge spillovers
which are not taken into account in the individual investment decision. Limited interaction may also
hinder the diffusion of available knowledge through the economy. In addition, imperfect information
about the practical relevance and possible use of fundamental research may cause underinvestment.
Finally, it can be argued that there needs to be a certain base of publicly available knowledge that is not
automatically created within the market, but is necessary for companies to further build upon.
These potential market failures provide the basis for government action, although it is not clear to what
extent they actually occur. The Netherlands has created six partly publicly funded knowledge institutions
that combine fundamental research with applied research for companies. The two main objectives of
these institutes are to make a contribution to theoretical knowledge development as well as to provide a
bridge function towards practical application. The public funding of these institutions takes place by
means of a fixed amount for maintaining and expanding the existing knowledge base and additional
funds for specific programs and research.
An analysis of the impact and effectiveness of these institutions is rare. Concrete figures are not
available, because the economic impact is difficult to determine. However, based on practical experience
in the past, the impression exists that the results are mixed. These institutions carry out useful research
with clear practical application. On the other side, the public institutions indicate that the two different
objectives of both fundamental research and practical use can lead to a certain amount of tension or even
incompatibility and as a result these institutions seem to focus on one of these two objectives.
Furthermore, market distortions can occur because these publicly funded institutions compete with
private research institutes in obtaining assignments. On the other side of the spectrum, they compete with
universities in the field of acquiring and sharing knowledge sharing, which creates an additional possible
negative effect in this regard is that these technological institutes may have an incentive to keep the
results of fundamental research to themselves, whereas universities do not. On the positive side, these
knowledge institutions do seem to provide a useful function, because universities continue to have
difficulties in obtaining assignments and bridging the gap between fundamental research and practical
application.
c) More diffusion and application of knowledge within small- and medium-sized businesses.
Another objective of Dutch innovation policy focuses on the diffusion of knowledge within small and
medium business. Market failures in this area consist of search costs that may be relatively high for
smaller companies. Incomplete information about the most recent technological development may then
slow down knowledge diffusion.
To address these information problems, there are several instruments available primarily aimed at giving
information and advice. This role is fulfilled by the independent and partly publicly funded institution
Syntens. Considering the nature of the market failure and the instruments that are used, the budget
available in this category is relatively low. Economic impact could nevertheless be considerable.
However, exact impact of innovation policy in this area is almost impossible to establish. Diffusion of