Government agencies, such as the National Science Foundation, subsidize basic research because in the absence of a subsidy too little research would be conducted.
The correct answer and explanation is :
The correct answer is market failure.
Explanation:
Government subsidies for basic research, like those provided by agencies such as the National Science Foundation (NSF), are a response to a phenomenon known as market failure. Market failure occurs when the free market, on its own, fails to efficiently allocate resources or provide goods and services that are beneficial for society as a whole. In the context of basic research, the market failure arises from the nature of public goods and the inability of private companies to fully capture the benefits of the research they fund.
Basic research, which is often foundational and exploratory, has the characteristic of being a public good. Public goods have two key features: they are non-excludable (no one can be excluded from using the benefits) and non-rivalrous (one person’s use of the good doesn’t reduce its availability for others). For example, once basic scientific research is conducted and results are published, anyone can access that knowledge and build upon it. As a result, private firms may not be willing to invest heavily in basic research because they cannot capture all the economic benefits generated by the knowledge they create. This is especially true for industries where research outcomes may not lead to immediate or direct profit, but rather serve as a foundation for future innovations.
Without government intervention, there would likely be an underinvestment in basic research, as private firms are more inclined to invest in research with clear, short-term commercial returns. The National Science Foundation and other government agencies subsidize basic research to overcome this market failure. By doing so, the government ensures that critical areas of knowledge, such as those in science and technology, continue to progress, which can ultimately lead to long-term societal benefits. This subsidy helps to ensure that research that may not have immediate commercial value is still pursued, supporting the advancement of knowledge for public good and fostering innovation in the long term.