Focal randomisation: An optimal mechanism for the evaluation of R&D projects

Abstract

In most countries, governments intervene in the process of R&D by financing a substantial part of it. The mechanism employed for choosing the projects to be financed is a committee composed of experts who evaluate projects in their field of specialisation, and decide which ones should be funded. This method is conservative. Proposals for new ideas are too often rejected, and inventions are commonly thrown out of the set of potential projects. In this paper, I propose a mechanism that will allow less conformity: focal randomisation. This states that projects that are unanimously ranked at the top by all reviewers will be adopted. Projects perceived as valueless by all are rejected, while projects that are ranked differently are randomised. I compare the average return under the present and proposed mechanisms. I examine under which conditions this new method is preferable, and its consequences on economic growth.