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Economic rationales of government involvement in innovation and the supply of innovation-related services



This paper presents the economic rationales of government intervention into innovation activities and into the supply of innovation-related services as inputs in innovation processes. There are two approaches to the question of the economic rationale of government involvement in technological advance and innovation activities. One is the neo-classical of market failure and the other is the evolutionary economics or the innovation system approach of system failure. The traditional rationale for technology policy has been that of market failure. Government can intervene to provide for public goods and to mitigate for externalities, barriers to entry, information asymmetries etc. However recent research demonstrates ways in which the factors shaping technological progress call for government measures to address system failure i.e. the lack of coherence among institutions within an innovation system.Following a review of the static efficiency market failure approaches to innovation and technology policy, the paper surveys various approaches to identify and describe system failures. System failures within an evolutionary framework may create low-growth traps where the growth-generating evolutionary mechanisms themselves are impaired. Given the characteristics of the market system in an evolutionary framework, these failures in dynamic efficiency terms imply considerably enhanced challenges for the policy maker.Current trends in technology and innovation policies reflect the change in the perception of the rationale and effectiveness of government measures. The traditional core of technology policies has comprised interventions such as managing the science base and designing financial incentives to industrial R&D as solutions to market failures. This repertoire has been enhanced with instruments to overcome system failures such as promoting co-operation between firms, universities and government laboratories and changing the design of institutions and incentives (Andersson, 1998).Systemic evolutionary innovation implies that policy making itself becomes an adaptive and learning-based activity. The current standpoint of the OECD is that market and system failures are not mutually exclusive but that both require attention by policy makers. Each has its limitations and pitfalls. Market failure remains the basis for technology policies in many areas. At the same time factors shaping technological progress increasingly call for strategies that can cope with system failure and achieve coherence among underlying institutions and incentive structures. Government has a role to optimise the contributions of innovation and technology diffusion for the economy as a whole (OECD, 1998).

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  • Johan Hauknes & Lennart Nordgren, "undated". "Economic rationales of government involvement in innovation and the supply of innovation-related services," STEP Report series 199908, The STEP Group, Studies in technology, innovation and economic policy.
  • Handle: RePEc:stp:stepre:1999r08

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    Cited by:

    1. Weber, K. Matthias & Rohracher, Harald, 2012. "Legitimizing research, technology and innovation policies for transformative change," Research Policy, Elsevier, vol. 41(6), pages 1037-1047.
    2. Chaminade, Cristina & Intarakumnerd, Patarapong & Sapprasert, Koson, 2012. "Measuring systemic problems in National Innovation Systems. An application to Thailand," Research Policy, Elsevier, vol. 41(8), pages 1476-1488.
    3. Valkonen, Laura, 2006. "Deregulation as a Means to Increase Competition and Productivity," Discussion Papers 1014, The Research Institute of the Finnish Economy.
    4. Carlos José Miranda Victório & Helder Gomes Costa & Cristina Gomes de Souza, 2016. "Modeling selection criteria of R&D projects for awarding direct subsidies to the private sector," Science and Public Policy, Oxford University Press, vol. 43(2), pages 275-287.
    5. Dominik F. Schlossstein & Jin-Hyo Joseph Yun, 2008. "Das Nationale Innovationssystem Südkoreas im Paradigmenwechsel," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 77(2), pages 113-127.
    6. Jeroen de Jong & Eric von Hippel, 2010. "Open, distributed and user-centered: Towards a paradigm shift in innovation policy," Scales Research Reports H201009, EIM Business and Policy Research.
    7. Laranja, Manuel & Uyarra, Elvira & Flanagan, Kieron, 2008. "Policies for science, technology and innovation: Translating rationales into regional policies in a multi-level setting," Research Policy, Elsevier, vol. 37(5), pages 823-835, June.

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