Gregory's ServerWhen investing in risky research, funding agencies can hedge their bets across a portfolio of large-scale high-risk projects. Individual scientists can't typically do this.
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 Thus the scientific enterprise is caught in a bind. Measures necessary to incentive effort necessarily dissuade researchers from taking enough risks. A social planner might induce effort and risk by paying large bonuses for major results. But given any budget to allocate among researchers, this is inefficient from the researchers' perspective because risk aversion means that to increase the utility of a high earner even modestly, you have to take a lot of wages away from low earners at high utility cost. But here's the thing: science has no external social planner. Scientists themselves determine what results are considered worthwhile, and how worthwhile. They decide who is hired, promoted, given wages, is awarded prizes, and garners esteem. In other words, they set their own wages, of course subject to a budget constraint. What we prove in this paper is that (in a simple model of the scientific enterprise), when left to their own devices scientists will choose for themselves a wage scheme that results in below-optimal risk-taking. This is an inevitable consequence of the unobservability of effort and risk, coupled with the lack of an external social planner. In other words, the rewards the science collective offers are not sufficient to motivating socially optimal levels of scientific risk. |
Researchers might be willing to take on risky projects if they could be insured against that risk, with wages that didn't depend on the vicissitudes of scientific fortune.
But you can't completely ensure against the failure to get results, because bad luck is indistinguishable from loafing and you need to somehow incentivize effort.