This paper employs a dynamic production model to examine the short-run effe
cts of publicly financed R&D capital on the cost structure of six high-tech
US manufacturing industries. The results show that, given an industry's ou
tput, publicly financed R&D capital reduces the variable production cost in
all industries. In addition an increase in publicly financed R&D causes ou
tput to increase implying that producers as well consumers are better off,
despite the presence of strong monopoly power in some industries. A low bou
nd for the 'social' rate of return to publicly financed R&D is also calcula
ted. (C) 1999 Elsevier Science B.V. All rights reserved.