Regulatory Effects on R&D Are Better Assessed As Part of the Innovation Process

Pursuant to a congressional request, GAO reviewed the federal regulatory process and the effect of this process on private sector research and development (R&D) activity. R&D is part of a complex sequence of events called innovation, which is the process by which inventions and new ideas are redesigned and embodied in various outputs until something of commercial value is produced. This report focuses on the effects of federal environmental safety and health regulations on R&D.

GAO stated that concern about the effects of regulations on R&D is generally misdirected. Most regulated industries in the United States face controls on rates of return, prices, entry into the industry, emissions of pollutants, or product safety. While these regulations may affect R&D, they are not restrictions placed directly on the R&D process. Since the results of R&D alone have no commercial value, unless sold as such, concerns about the effects of R&D are concerns about the innovation process. Regulations adversely affecting the innovation process also tend to adversely affect certain types of R&D. GAO concluded that the direct effects of regulation on R&D embrace several distinct elements. First, costs are increased to meet regulatory requirements, which in turn, may affect the development of new products, processes, and services by forcing industries to increase the costs of new product introduction. Second, with regulation, profits tend to be reduced and with them R&D is reduced. Finally, regulations may also cause increases in uncertainty, which may have a negative effect on investment in R&D.