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NIST
GCR 04-863
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The cluster study approach combines some of the advantages of detailed case studies and higher-level overview studies, such as:
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To meet these challenges, the ATP
Based on the above approach, new composites manufacturing processes and new industrial products (incorporating advanced composites) emerged that would not have been possible without ATP funding and ATP facilitation.
As indicated in Figure 1, the cluster of ATP-funded innovative composites manufacturing projects will result in a rich variety of social and economic benefits, directly attributable to the ATP.
Figure 1: Flow of Benefits from ATP-Funded Composites Manufacturing Projects
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The causal chain from manufacturing process to improved industrial products includes the intermediate elements of lower composites costs and expanded composite utilization. The resultant social and economic benefits will include:
For analytical purposes, benefits are segmented by classes of beneficiaries. Economic benefits enjoyed by the innovating firms funded through ATP are considered private benefits. The innovating firm’s expectation that these private benefits will be realized is an important precondition for private cost sharing, for completing the remaining technical development tasks after the successful completion of the ATP-funded project phase, and for undertaking the eventual commercialization phase, thereby making it possible for the ATP-funded high-risk technology to yield beneficial social and economic results. In this sense, the realistic expectation of attractive private benefits or rates of return to the ATP-funded innovator is a form of “insurance” that ATP’s investment will in fact lead to widespread use.
In contrast to private benefits to the innovating firms receiving ATP funding, the economic and social benefits arising from the ATP-funded technology enjoyed by other industrial firms, end users of industrial products, and the public at large are considered public benefits .
In microeconomic terms, these public benefits represent “spillover” phenomena. “Spillover” designates that portion of total benefits resulting from the new ATP Analytical funded technology (both public and private) that the innovating firm is unable to capture for itself (Jaffe 1998). Both the theoretical and empirical economics literature suggests that public benefits, or the spillover from ATP investment, can be expected to substantially exceed the magnitude of private benefits (Mansfield et al. 1977).
Beyond public and private distinctions, other allocation dynamics can be posited for public benefits from new composites manufacturing technologies. As indicated in Figure 2, innovating firms provide better-performing and less-expensive composite materials to the industrial sector, which incorporates improved composite materials in its industrial products and retains some of the resulting economic benefits as producer surplus. Through market competition, some or most of these economic benefits are passed on to product end users as consumer surplus (McConnell and Brue 1996). As discussed by Jaffe, it is expected that “innovative products (incorporating improved composite materials) will generally be sold at prices that do not fully capture all of the superiority of the product relative to what was available before,” resulting in increased consumer welfare (Jaffe 1998).
Figure 2: Benefit Allocation from ATP-Funded Composites Manufacturing Projects
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In contrast to economic benefits whose allocation among producers and consumers is subject to market forces, some important benefits have a strong “public goods” quality that society at large will be able to enjoy. Examples include reduced harmful environmental emissions, reduced energy dependence, and knowledge diffusion about the new technology. Regarding the expectation of knowledge diffusion, Jaffe (1998) notes that
[C]ommercial development and use of new knowledge will tend to cause it to spread, despite any desire of the (innovator) to prevent such spread. Economic exploitation of new knowledge requires the sale of new products or the incorporation of new processes into commercial use. Such commercialization tends to reveal at least some aspects of the new knowledge to other economic agents. Hence the very process of economically exploiting the knowledge that research creates tends to pass that knowledge to others.
METHODOLOGY
In their seminal study of public and private benefits resulting from technology innovation, Mansfield et al. (1977) stress the necessity of undertaking detailed case studies and other empirical work to provide a rich set of non-obvious and often counterintuitive insights into the complex causal chain from innovation, to market pathways, and to the eventual benefits realized by innovators, other industry participants at higher levels in product chains, customers, and society at large.
The need for detailed case studies is justified, in part, by the variety of commercial and market dynamics that are unique and specific to industries. Surface generalizations about these dynamics may sometimes lead to unreliable conclusions and detract from the credibility for analytical results.
In line with Mansfield et al. (1977), our cluster study of composite manufacturing projects uses a detailed empirical approach so as to fully capture the causal connections from technological innovation to public and private benefits in the widely divergent automotive, offshore petroleum, and civil infrastructure industries.
Accordingly, two projects ATP funded in the area of composites manufacturing were selected for detailed case studies, one in the automotive industry and the other in the offshore petroleum industry. These detailed case studies present project history (including an account of the need for ATP funding), the characterization of technical challenges and accomplishments, opportunities for commercial application, pathways to markets, and an extensive identification of all expected benefits, both public and private.
Economic analysis estimated benefits to industry users and the general public and compared them to the ATP investment. Estimated benefits to direct recipients of ATP funding were excluded. For public benefits that could be meaningfully quantified, cash flow estimates were generated for a conservative base case scenario and for a more optimistic “step-out” scenario. Cash flow estimates were used to compute three sets of economic performance measures for comparing the value of public benefits to ATP’s investments: benefit-to-cost ratios, net present values, and internal rates of return.
Benefit-to-cost ratio is computed by dividing the present value of “public benefit” cash flow estimates (enjoyed by U.S. beneficiaries except the ATPfunded innovator) by the present value of ATP’s investment. This measure estimates the benefit to the nation for every dollar of ATP’s investment. Net present value (NPV) is calculated by subtracting the present value of ATP’s investment from the present value of public benefits from innovative composites manufacturing technologies. Cash flows are normalized to 2003 dollars and discounted at the 7 percent OMB-mandated rate. This measure describes the net benefit to the nation, in 2003 dollars. The public rate of return is calculated by iterative solution for a rate at which the discounted value of ATP’s investment would equal the discounted value of public benefit cash flows. This measure describes the rate of return to the nation on ATP’s investment. |
Additional ATP projects that had completed their technical goals but whose commercialization prospects are longer term were selected as the remaining three projects in the cluster of five projects. High-level analysis was conducted to review key technical challenges and achievements, as well as future prospects for commercialization and public benefit creation. Measures of performance were computed for the clusterusing estimates of currently identifiable benefits. These measures compare public benefits of the two case-study projects with near-term commercialization prospects to the ATP-funded costs of all five projects in the cluster.
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Date created: July 14,
2004
Last updated:
August 3, 2005
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