Why do firms do basic research (with their own money)?

The question to be addressed is: Why do private firms perform basic research with their own money? Interest in this question derives from both analytical and utilitarian considerations. There is empirical evidence in the United States, which provides the main context for this paper. Supporting the view that basic research makes a significant contribution to the productivity growth of the economy [4,7]. It is widely held that social returns from basic research are significant and higher than private returns and it is for this reason that most such activities continue to be financed by the taxpayer. This also implies that measures aimed at increasing basic research by the private sector will be welfare improving. In the United States, the federal government in the years since the Second World War has provided the vast majority of all funds devoted to basic research. Although the federal share has been declining in recent years, and although that share is at its lowest level in about 20 years, it still constitutes about two-thirds of the total [10]…