Analyzing Investments in Innovation: Private and Public Perspectives


February 28, 2012


Brent Rowe


RTI International


Software-based companies put extraordinary emphasis on being first to market, and all efforts are made to ensure that new products are launched as quickly as possible. This strategy of focusing on gaining competitive advantage can often result in lower quality products which have to be patched, as well as a lack of time spend on robust analysis of investments in R&D, barriers to and incentives surrounding the adoption of new technologies or technology policies, and even the management of technology use. Better understanding the full economic costs and benefits of various investments and activities, as well as analyzing the incentives influencing the decisions to engage in certain investments and activities, can result in a dramatic improvement in performance.
In some cases, however, despite sufficient analysis, companies fail to invest in certain areas (e.g., new models or testing frameworks) because they judge that they will not accrue sufficient benefits. Either the benefits of a certain investment may necessarily flow outside of an individual company (e.g., a testing framework may need to be vetted externally to gain acceptance) or the benefits to one company may be less than the cost (even though the benefits to a certain industry in aggregate may be great). In these cases, the government can play a role in improving the quality and productivity of software by investing in technology infrastructure. When doing so, both prospective and retrospective analyses of such investments can help to guide the government towards the most economically beneficial decisions.
This talk will have two parts. First, it will provide a conceptual framework for thinking about the costs and benefits of technology investments and technology-related activities from a private perspective. Second, based on several economic studies, the presentation will describe several economic studies which were conducted for the National Institute of Standards and Technology (NIST) that aimed to estimate the private sector gains that could result from more effective technology development investments


Brent Rowe

Brent Rowe is a senior economist at RTI. His research, which focuses on technology policy and security issues, has been funded by the Departments of Homeland Security and Commerce, among other agencies. In particular, Mr. Rowe develops robust methodologies to assess the costs, benefits, and barriers related to the adoption of new technologies or new technology or security policies. His work includes both prospective and retrospective cost-benefit analyses, as well as more methodologically complex analyses that involve analyzing risk preferences, usability, and non-market valuation of costs and benefits. Recently, Mr. Rowe’s research has focused on economic issues surrounding cyber security. For example, he just completed a study for DHS which estimated the supply of and demand for Internet service providers (ISPs) to provide more security to home Internet users, and he is working on a cyber security strategic planning study for the National Institute of Standards and Technology (NIST), which aims to identify federal government investments which would have the greatest economic impact on the U.S. industrial base. Mr. Rowe has served on a variety of government panels and conference committees dealing with technology policy issues. Among his publications, in 2007 he co-authored Cyber Security: Economic Strategies and Public Policy Alternatives based on this research.