period of time for the inventor to earn a good return, but not so long that it allows the inventor to charge a

monopoly price permanently.

Because patents are imperfect and do not apply well to all situations, alternative methods of improving the rate

of return for inventors of new technology are desirable. The following sections describe some of these possible

alternative policies.

Policy #1: Government Spending on Research and Development

If the private sector does not have sufficient incentive to carry out research and development, one possibility is

for the government to fund such work directly. Government spending can provide direct financial support for

research and development (R&D) conducted at colleges and universities, nonprofit research entities, and

sometimes by private firms, as well as at government-run laboratories. While government spending on

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13.2 • How Governments Can Encourage Innovation 315
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