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Positive Externalities and R&D: Two Conflicting Traditions in Economic Theory

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  • Sinclair Davidson
  • Heath Spong

Abstract

This paper explores the early discussion of external economies in the work of Alfred Marshall and Arthur Pigou. Marshall emphasized external economies as a positive aspect of the market process. Pigou's interpretation of externalities has become the standard public finance argument on the existence of market failure, and provides the rationale for proposed policy solutions. An examination of the differences between the two perspectives is subsequently used as the base for a discussion of the modern analysis of research and development, and of the difficulties inherent in the standard Pigovian view. A final substantive section of the paper reconsiders the Marshallian perspective, identifying recent contributions to economic theory that have begun a return to Marshall's original interpretation. The conclusion considers the significance of this Marshallian tradition for industrial policy.

Suggested Citation

  • Sinclair Davidson & Heath Spong, 2010. "Positive Externalities and R&D: Two Conflicting Traditions in Economic Theory," Review of Political Economy, Taylor & Francis Journals, vol. 22(3), pages 355-372.
    • Handle: RePEc:taf:revpoe:v:22:y:2010:i:3:p:355-372
    DOI: 10.1080/09538259.2010.491284
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    References listed on IDEAS

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    1. Edwin Mansfield, 1996. "Microeconomic policy and technological change," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 40(Jun), pages 183-213.
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    Cited by:

    1. Darcy W E Allen, 2020. "When Entrepreneurs Meet:The Collective Governance of New Ideas," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number q0269, January.
    2. Sheila Dow, 2020. "Alfred Marshall, Evolutionary Economics and Climate Change: Raffaelli Lecture," Department Discussion Papers 2001, Department of Economics, University of Victoria.
    3. Sinclair Davidson & Jason Potts, 2016. "The Social Costs of Innovation Policy," Economic Affairs, Wiley Blackwell, vol. 36(3), pages 282-293, October.

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