estimated rates of return. (The rate of return is the estimated payoff from the project.) Figure 13.2 shows how
310 13 • Positive Externalities and Public Goods

the calculations work. The downward-sloping DPrivate curve represents the firm’s demand for financial capital
and reflects the company’s willingness to borrow to finance research and development projects at various

interest rates. Suppose that this firm’s investment in research and development creates a spillover benefit to

other firms and households. After all, new innovations often spark other creative endeavors that society also

values. If we add the spillover benefits society enjoys to the firm’s private demand for financial capital, we can
draw DSocial that lies above DPrivate.

If there were a way for the firm to fully monopolize those social benefits by somehow making them unavailable

to the rest of us, the firm’s private demand curve would be the same as society’s demand curve. According to
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