One of the working papers in the final report of the Arizona Board of Regents' Task Force on Excellence, Efficiency and Competitiveness, this study focuses on Arizona's university research and economic development. There is concern that America is losing its competitive edge in the crucial areas of science and technology as fewer students study engineering, science, and mathematics. As incentives for industrial research and development diminish, the potential role of university conducted research is enlarged. Research costs and benefits are discussed, noting that the extent to which a university engages in research is widely recognized as an index of its excellence. Arizona's changing research climate is explained. Arizona faculty members are encouraged more directly now in entrepreneurial activities based on research. Cautionary concerns and potential dangers are emphasized, since, although emphasis on economic development and technological competitiveness is appropriate and crucial, it can produce a skewed conception of university research. A case study in cooperative innovation is presented (the SEMATECH microchip research consortium). Six recommendations include: the Board of Regents should continue to encourage technology transfer via policies that lower or remove barriers; the state should institute a program of matching grants for research projects with potential economic benefit; and cities and the state should work together to support schools of very high quality and the various amenities that make Arizona a desirable place to live and work. Contains 10 references. (SM)