This paper discusses differences in the industrial activity in R&d betwenn Japan and the United States. The analysis was based on the hypothesis that the industrial results from R&D are closely connected with the investment in R&D and the intensity of competition in R&D. Currently, the distribution of R&D expenditures by industries in Japan is inclined toward applied research and development, while that in the United States is inclined toward basic research. Using the simplified model, the author shows that the inclination in the distribution is due to the R&D funding by the government and the possibility of a monopoly over inventions or innovations. The market failure in the distribution of R&D expenditures creates the differences in industrial activity in R&D between Japan and the United States. Consequently, it is rational that the government carries out the technological policies in order to correct the market failure. However, considering that the present systems of R&D and the present pattern of the distribution of resources in R&D have been formed for a long time, it is necessary to take long-term effective policies.
