Research institutions of the ETH domain : Issues and challenges – theoretical considerations from an economic perspective

In this blog article SSC member Dominique Foray explores the economical potential of reforming the ETH research institutions.

There is a long lasting and controversial discussion on the need for reforming the ETH research institutions (PSI, EAWAG, WSL and EMPA) and their role in the Swiss research and innovation landscape. To clarify the questions at stake it can be helpful to refer to the economics of scientific institutions as developed by the pioneering works of economists such as Ken Arrow, Partha Dasgupta, Paul A. David and Paula Stephan.

Having presented the conceptual framework, it will then be possible to provide a few insights on the Swiss situation and to propose a mechanism to introduce more flexibility in the whole ETH system in order to increase the efficiency of resource allocation.

A conceptual framework

In the public research sector, there are two different types of public research institutions. The first type involves direct governmental engagement in knowledge production, typical of Government Research Laboratories (GRLs). The second type is characterized by «private agents» conducting research, subsidized by the government, a model prevalent in research universities (RUs). This distinction is crucial due to the disparate economic incentives and resource allocation mechanisms each model employs.

Foto von Ousa Chea auf Unsplash

RUs are decentralized institutions, in which knowledge production decisions are independently taken by members of a self-regulating profession (academic scientists), and whose work is subsidized by the government. GRLs on the other hand are closer to a kind of «command mode of planning», such that the decision of what to produce and how much to produce is made by the government.

GRLs and RUs form what is commonly known as the public sector research. They are related by exchanges of knowledge, personnel and finances and they recruit scientists on the same labor market. Yet it is important to maintain the distinction between the two forms of public research because the economic incentives and resource allocation mechanisms are fundamentally different. In other words, each institution creates for individuals a fair balance of advantages and constraints but the balance is different.

In RUs, researchers are granted the freedom to choose their research targets, balanced by the obligation to provide educational services such as teaching and supervision[1]. This forms the essence of the social contract between research universities and society[2]. In contrast, GRLs operate under a distinct social contract: there is no teaching obligation, but their research activities are closely aligned with state-defined strategic objectives, offering less autonomy compared to RUs.

Historically, innovation-leading countries have transitioned from a GRL-dominated system to one primarily centered around RUs. This shift reflects the evolving needs of these countries‘ innovation ecosystems. RUs are known for generating substantial positive externalities in terms of human capital and basic research, leading to economies of scope and internal spillovers. GRLs, with their focused, mission-oriented approach, contribute differently, often aligned with specific societal or strategic interests.[3] This distinction in terms of social contract is wonderfully explained by Zucker and Darby (1998, p.62): «The idea of research and technology organisations sounds very attractive, particularly in a small country that sees them as a vehicle to achieve a critical mass by concentrating the nation’s best scientists in one place. In fact, we ourselves would like to have our research well-funded until retirement and the opportunity to build a more permanent research group without the need to educate and train successive generations of graduate students and postdoctoral fellows. Despite the personal attractions, we can also see how that situation might cool the entrepreneurial spirit as well as our impact on the most important objective of any knowledge institution: the generation of high-quality human capital».

A first order policy guidance on this matter is therefore that leading countries should try to keep the GRL sector as a small fraction of the whole public research system, giving to the RUs ‘’la part du lion’’! This is still work in progress in several European countries[4].

The Swiss case: the size of the GRL sector is not an issue; its public accountability is an issue

In Switzerland, the primary concern with the GRL sector is not its size, but its efficiency and public accountability. Even a small GRL sector in Switzerland is resource-intensive, which brings the principles of public accountability and conditionalities to the forefront of its management and governance. Accountability in this context goes beyond just highlighting successes; it also involves being transparent about failures and the rationale behind specific research directions.

Since the rationale for resource allocation to GRL cannot be based on education services and the training of a mass of students and is therefore only based on research and on what society can get from it, GRL must explain in great details what they are doing and how they are doing it. They must be transparent about their failures as their successes. They must also explain why they employ scientists in some specialized fields or disciplines which seem rather far from the main «mission» of the concerned GRL. It can be consistent with the research mission but it needs to be explained to the public. Accountability helps legitimize the GRL’s activities. The complement of accountability is resource conditionalities or discipline. Discipline requires clear objectives, measurable targets, close monitoring, proper evaluation, well-designed rules, and professionalism.

A proposed mechanism to increase GRL and the whole system (GRL + RU) efficiency

The proposal to enhance the efficiency and flexibility of the ETH system involves the implementation of a mechanism for resource reallocation between GRLs and RUs based on regular evaluations. Thus, it is possible to design some flexible mechanisms for re-allocating scientists temporarily or permanently between GRLs and RUs. This mechanism is designed to introduce greater system flexibility and optimal resource utilization, particularly in addressing areas where research fields within GRLs may become less relevant. Regular application of this mechanism would potentially enhance both individual and systemic productivity, avoiding stagnation in less relevant fields.

As being transferred to a RU, the concerned team of scientists will contribute to the teaching force and logically become free in their production decision. They are now in a RU and in conformity with the social contract they are now free to pursue the research activities they want. Having such a mechanism which can be activated regularly will enhance productivity of individuals and of the system as a whole:

  • It will introduce much more flexibility in the system;
  • It will avoid a situation where a group of scientists of a field which has become less relevant in a GRL remains stucked for ever in this GRL;
  • It offers a new potential pool of resources for the educational activities of the RUs.

For countries at the forefront of innovation, maintaining a balanced and efficient public research system, with a significant emphasis on RUs, is crucial. Such a system is vital for fostering sustained innovation and developing high-quality human capital. The Swiss example, where the main GRLs and the RUs are overseen by the same administrative board, offers a unique model for implementing these strategic recommendations.



[1] This explains the famous quotation of K. Arrow: «The fact that research and education are the two sides of the same occupation is a lucky accident».

[2] Knowledge transfer and innovation are obviously part of the contract between RUs and society.

[3] Cf. SSC (2023). Mission-oriented Research and Innovation in Switzerland. Analysis and Recommendations by the Swiss Science Council SSC.

[4] It is also fair to say that countries characterized by a strong political and administrative culture of State centralization and interventionism – such as France – have a natural tendency to develop a very robust and powerful GRL sector which is then difficult to change.



Arrow, K, 1962, Economic welfare and the allocation of resources for invention, in Nelson, The rate and direction of inventive activity, Princeton University Press, 609-26

Dasgupta, P., 1988, The welfare economics of knowledge production, Oxford Review of Economic Policy, vol.4, 4, 1-12

Dasgupta, P. and David P.A., 1994, Towards a new economics of science, Research Policy, vol.23 (5), 487-521

Stephan, P., 1996, The economics of science, Journal of Economic Literature, vol.14 (3), 1199-1235

Zucker, L. and Darby, M., 1998, The economist’s case for biomedical research, in Barfield and Smith (eds), The Future of Biomedical Research, AEI Press, Washington D.C.


On this blog, members of the Swiss Science Council express their personal opinion. This does not necessarily correspond with the analysis or position of the council.