Episode 4 - The Failure of Market Failure
Author: Bill Janeway | Source: INET
What are the rationales for State support for technical innovation? Adopting the Neoclassical approach of "market failure", Nelson and Arrow suggested that private business firms will invest less in research & development than is socially optimal. Empirical estimates suggest that the gap between private and social benefits is quite large. This has served as a justification for the large increase in State investment in basic research since WWII. But historically, State intervention in innovation was driven by concerns for national security and economic development. Janeway suggests it is better to think in terms of national systems of innovation, rather than market failure.