A Valley of Death in the innovation sequence: an economic investigation

Abstract

The road between a discovery generated from basic research to a commercial product or process is long and, according to some, rife with significant roadblocks. Innovators and investors alike routinely claim that a ‘funding gap’ or ‘Valley of Death’ exists between basic research and commercialization of a new product. We show that the standard explanations for underinvestment in R&D are not the cause of this phenomenon. Rather, the Valley of Death occurs only in the presence of ‘non-economic’ investments (such as government expenditures on basic research) that are made in very early stage research without sufficient attention to the likely investment decisions at later stages of the innovation process. Other implications for the Valley of Death of government funding of R&D are also considered. Some policy implications of these findings are provided.

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