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A Note on the Behavioral Political Economy of Innovation Policy

Author

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  • Jan Schnellenbach

    (Brandenburg University of Technology)

  • Christian Schubert

    (Faculty of Management Technology, German University in Cairo)

Abstract

We propose that policy-making in the realm of innovation policy can be fruitfully analyzed from the perspective of Behavioral Political Economy. Citizens, policy-makers and also bureaucrats are prone to biases that have been empirically identified in behavioral economic and psychological research. When applied to innovation policy, it can be shown that under certain conditions, policy-makers are willing to support riskier innovative projects and that this tendency is amplified by public sector incentives, such as soft budget constraints. The same holds for a tendency to support ongoing innovative projects even if their profitability becomes increasingly doubtful. Finally, we also highlight how special-interest policies aimed at distorting risk perceptions can slow down the innovation process.

Suggested Citation

  • Jan Schnellenbach & Christian Schubert, 2019. "A Note on the Behavioral Political Economy of Innovation Policy," Working Papers 51, The German University in Cairo, Faculty of Management Technology.
    • Handle: RePEc:guc:wpaper:51
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    More about this item

    Keywords

    Biases; Heuristics; Sunk Cost Fallacy; Availability Bias; Overconfidence; Loss Aversion;
    All these keywords.

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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