ABSTRACT
Many firms and other private organizations support energy research and development (R&D). In allocating funds to specific projects, these enterprises have an incentive to increase their expenditures until the expected marginal private benefits (MPB) are just equal to the expected marginal private costs (MPC) after both benefits and costs are discounted for time and risk. The exploitation of monopoly power by governments introduces another imperfection in the energy market. The benefits from public goods, such as a clean environment and national defense, are enjoyed by nearly everyone. To the extent that energy R&D does promote certain public goods, government intervention is needed to assure an optimal amount of energy R&D will be conducted. However, the source of the external benefits is different. They arise not from the commercial exploitation of R&D results by others, but rather from improvements in environmental quality, national defense, economic prosperity, and balance of payments and trade.
