The Simple Economics of Research Portfolios

This article identifies biases in market portfolios of parallel research projects arising from the noncongruence of social goals and private aspirations, occasioned by those circumstances where the market rewards only the winner and where the winner is awarded the entire social surplus. It is shown that under risk-neutrality this noncongruence implies that t he market encourages the development of too many discoveries, too lar ge a spread in the distribution of the quality of discoveries, and an excessive occurrence of multiple discoveries.