Johannes Schneider (U Carlos III Madrid & U Mannheim); Christoph Carnehl (Bocconi)
Abstract
Is more novel research always desirable? We develop a model in which knowledge shapes society's policies and guides the search for discoveries. Researchers select a question and how intensely to study it. The novelty of the question determines both the value and the difficulty of discovering its answer. We show that the benefits of discoveries are non-monotone in novelty. Through a dynamic externality, moonshots---research on questions more novel than myopically optimal---can improve the evolution of knowledge. Incentivizing moonshots requires promising ex-post rewards. However, even a myopic funder combines rewards with ex-ante cost reductions to increase research effort.