Rationales and Instruments for Public Innovation Policies
DOI:
https://doi.org/10.6000/1929-7092.2012.01.14Keywords:
Innovation policies, innovation, R&D, incentives, market failuresAbstract
Abstract: Economic interest in innovation policy largely arises from the fundamental importance of innovation to social welfare and from inefficiencies in innovation in a competitive market environment. As a result, a wide variety of public innovation policies are used in practice. This study reviews the economic justifications for public innovation policies and compares the existing policy tools, paying particular attention to the Finnish innovation policy environment.
References
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Busom, Isabel, Beatriz Corchuelo, and Ester Martinez Ros. 2012. “Tax Incentives or Subsidies for R&D.” UNU-MERIT Working Paper Series 2012-056.
Bessen, James and Michael J. Meurer. 2008. Patent Failure: How Judges, Bureaucrats and Lawyers Put Innovators at Risk. Princeton, NJ: Princeton University Press.
Boadway, Robin and Michael Keen. 2006. “Financing and Taxing New Firms under Asymmetric Information.” FinanzArchiv 62(4): 471-502.
http://dx.doi.org/10.1628/001522106X172661
Boldrin, Michele and David Levine. 2008. “Perfectly Competitive Innovation.” Journal of Monetary Economics 55(3): 435-453.
http://dx.doi.org/10.1016/j.jmoneco.2008.01.008
Chaminade, Christina and Charles Edquist. 2006. “Rationales for Public Policy Intervention from a Systems of Innovation Approach: The Case of VINNOVA.” CIRCLE Electronic Working Paper Series No. 2006/04.
Cerulli, Giovanni. 2010. “Modelling and Measuring the Effect of Public Subsidies on Business R&D: A Critical Review of the Economic Literature.” Economic Record 86(274): 421-449.
http://dx.doi.org/10.1111/j.1475-4932.2009.00615.x
David, Paul A., Bronwyn H. Hall, and Andrew A. Toole. 2000. “Is Public R&D a Complement or a Substitute for Private R&D? A Review of the Econometric Evidence.” Research Policy 29(4): 497-529.
http://dx.doi.org/10.1016/S0048-7333(99)00087-6
De Meza, David. 2002. “Overlending?” Economic Journal 112(February): F17-F31.
http://dx.doi.org/10.1111/1468-0297.00681
De Meza, David and David C. Webb. 1987. “Too Much Investment: A Problem of Asymmetric Information.” Quarterly Journal of Economics 102(2): 281-292.
http://dx.doi.org/10.2307/1885064
Duflo, Esther and Michael Kremer. 2005. “Use of Randomization in the Evaluation of Development Effectiveness.” Pp. 205-232 in Evaluating Development Effectiveness, edited by G. Pitman, O. Feinstein, and G. Ingram. New Brunswick, NJ: Transaction Publishers.
Gallini, Nancy and Suzanne Scotchmer. 2002. “Intellectual Property: When Is It the Best Incentive Mechanism?” Pp. 51-78 in Innovation Policy and the Economy. Vol. 2, edited by A. Jaffe, J. Lerner, and S. Stern. Cambridge, MA: MIT Press.
Garciá-Quevedo, José. 2004. “Do Public Subsidies Complement Business R&D? A Meta-analysis of the Econometric Evidence.” KYKLOS 57(1): 87-102.
http://dx.doi.org/10.1111/j.0023-5962.2004.00244.x
Georghiou, L., Smith, K., Toivanen, O. and Ylä-Anttila, P. (2003) Evaluation of the Finnish Innovation Policy Support System. Ministry of Trade and Industry (Finland) Publications 5/2003.
Green, Jerry R. and Suzanne Scotchmer. 1995. “On the Division of Profit in Sequential Innovation.” RAND Journal of Economics 26(1): 20-33.
http://dx.doi.org/10.2307/2556033
Hall, Bronwyn H. 2002. “The Financing of Research and Development.” Oxford Review of Economic Policy 18(1): 35-51.
http://dx.doi.org/10.1093/oxrep/18.1.35
Hall, Bronwyn. H. and John Van Reenen. 2000. “How Effective Are Fiscal Incentives for R&D? A Review of the Evidence.” Research Policy 29(4-5): 449-469.
http://dx.doi.org/10.1016/S0048-7333(99)00085-2
Henry, Emeric and Carlos J. Ponce. 2011. ”Waiting to Imitate: On the Dynamic Pricing of Knowledge.” Journal of Political Economy 119(5): 959-981.
http://dx.doi.org/10.1086/662721
Holmström, Bengt and Jean Tirole. 1997. “Financial Intermediation, Loanable Funds, and the Real Sector.” Quarterly Journal of Economics 112(3): 663-691.
http://dx.doi.org/10.1162/003355397555316
Hopenhayn, Hugo A., Gerard Llobet, and Matthew F. Mitchell. 2006. “Rewarding Sequential Innovators: Prizes, Patents, and Buyouts.” Journal of Political Economy 114(6): 1041-1068.
http://dx.doi.org/10.1086/510562
Hyytinen, Ari and Mika Pajarinen. 2003. “Small Business Finance in Finland: A Descriptive Study.” Pp. 203-204 in Financial Systems and Firm Performance: Theoretical and Empirical Perspectives. ETLA B: 200, edited by A. Hyytinen and M. Pajarinen. Helsinki: Taloustieto.
Jaffe, Adam. B. and Josh Lerner. 2004. Innovations and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It. Princeton, NJ: Princeton University Press.
Klette, Tor J., Jarle Møen and Zvi Griliches. 2000. “Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies.” Research Policy 29 (4-5): 471-495.
http://dx.doi.org/10.1016/S0048-7333(99)00086-4
Kremer, Michael. 1998. “Patent Buyouts: A Mechanism for Encouraging Innovation.” Quarterly Journal of Economics 113(4): 1137-1168.
http://dx.doi.org/10.1162/003355398555865
Lerner, Josh. 2002. “When Bureaucrats Meet Entrepreneurs: The Design of Effective Public Venture Capital Programmes.” Economic Journal 112(February): F73-F84.
http://dx.doi.org/10.1111/1468-0297.00684
Lessig, Lawrence. 2004. Free Culture. New York, NY: Penguin Press.
Maurer, Stephen M. and Suzanne Scotchmer. 2004. “Procuring Knowledge.” Pp. 1-31 in Intellectual Property and Entrepreneurship: Advances in the Study of Entrepreneurship, Innovation and Growth. Vol. 15, edited by G. Libecap. Amsterdam: JAI Press (Elsevier).
Menell, Peter S. and Suzanne Scotchmer. 2007. “Intellectual Property.” Handbook of Law and Economics, edited by M. Polinsky and S. Shavell. Amsterdam: Elsevier.
http://dx.doi.org/10.1016/S1574-0730(07)02019-1
Mohnen, Pierre. and Boris Lokshin. 2010. “What Does It Take for an R&D Tax Incentive Policy to Be Effective?” Pp. 33-58, in Reforming Rules and Regulations, edited by V. Ghosal. Cambridge, MA: MIT Press.
Møen, Jarle. 2007. “Should Finland Introduce an R&D Tax Credit? Reflections Based on Experience with Norwegian R&D Policy.” ETLA Discussion Papers No. 1097.
Niinimäki, Juha-Pekka and Tuomas Takalo. 2007. “Benchmarking and Comparing Entrepreneurs with Incomplete Information.” Finnish Economic Papers 20(2): 91-103.
OECD. 2011. OECD Science, Technology and Industry Scoreboard 2011. OECD Publishing.
Parsons, Mark and Nicholas Phillips. 2007. ”An Evaluation of the Federal Tax Credit for Scientific Research and Experimental Development.” Department of Finance (Canada), Working Paper 2007-08.
Scotchmer, Suzanne. 2004a. “The Political Economy of Intellectual Property Treaties.” Journal of Law, Economics, and Organizations 20(2): 415-437.
http://dx.doi.org/10.1093/jleo/ewh040
Scotchmer, Suzanne. 2004b. Innovation and Incentives. Cambridge, MA: MIT Press.
Sobel, Dava. 1995. Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time. New York, NY: Walker.
Solow, Robert. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics 70(1): 65-94.
http://dx.doi.org/10.2307/1884513
Solow, Robert. 1957. “Technical Change and Aggregate Production Function.” Review of Economic and Statistics 39(3): 312-320.
http://dx.doi.org/10.2307/1926047
Stiglitz, Joseph E. and Andrew Weiss. 1981. “Credit Rationing in Markets with Imperfect Information.” American Economic Review 71(3): 393-410.
Takalo, Tuomas and Tanja Tanayama. 2010. “Adverse Selection and Financing of Innovation: Is There Need for R&D Subsidies?” Journal of Technology Transfer 35(1): 16-41.
http://dx.doi.org/10.1007/s10961-009-9112-8
Takalo, Tuomas, Tanja Tanayama, and Otto Toivanen. 2011. “Estimating the Benefits of Targeted R&D Subsidies.” Forthcoming in Review of Economics and Statistics.
Takalo, Tuomas, Tanja Tanayama, and Otto Toivanen. 2012. “Market Failures and the Additionality Effects of Public Support to Private R&D: Theory and Empirical Implications.” Paper presented at the Annual Meeting of the European Association for Research in Industrial Economics, September 4, Rome, Italy.
Toivanen, Otto. 2008. “National Innovation Policy in an International World – Perspectives from Finland.” Pp. 118-122 in Going Global: The Challenges for Knowledge-based Economies, edited by M. Squicciarini and T. Loikkanen. Publications of The Ministry of Employment and the Economy (Finland) 20/2008.
Veugelers, Reinhilde, et al. 2009. Evaluation of the Finnish National Innovation System- Full Report. Helsinki: Taloustieto.
Warda, Jacek. 2006. “Tax Treatment of Business Investments in Intellectual Assets: An International Comparison.” OECD Science Technlogy and Indusry Working Papers Number 2006/4.
Zúñica-Vicente, JoséÁngel, César Alonso-Borrego, Francisco J. Forcadell, and José I. Galan. 2012. “Assessing the Effect of Public Subsidies on Firm R&D Investment: A Survey.” Forthcoming in Journal of Economic Surveys
Arrow, Kenneth J. 1962. “Economic Welfare and the Allocation of Resources for Invention.” Pp. 609-626 in The Rate and Direction of Economic Activities: Economic and Social Factors, edited by R. Nelson. Princeton, NJ: Princeton University Press.
Busom, Isabel, Beatriz Corchuelo, and Ester Martinez Ros. 2012. “Tax Incentives or Subsidies for R&D.” UNU-MERIT Working Paper Series 2012-056.
Bessen, James and Michael J. Meurer. 2008. Patent Failure: How Judges, Bureaucrats and Lawyers Put Innovators at Risk. Princeton, NJ: Princeton University Press.
Boadway, Robin and Michael Keen. 2006. “Financing and Taxing New Firms under Asymmetric Information.” FinanzArchiv 62(4): 471-502.
http://dx.doi.org/10.1628/001522106X172661
Boldrin, Michele and David Levine. 2008. “Perfectly Competitive Innovation.” Journal of Monetary Economics 55(3): 435-453.
http://dx.doi.org/10.1016/j.jmoneco.2008.01.008
Chaminade, Christina and Charles Edquist. 2006. “Rationales for Public Policy Intervention from a Systems of Innovation Approach: The Case of VINNOVA.” CIRCLE Electronic Working Paper Series No. 2006/04.
Cerulli, Giovanni. 2010. “Modelling and Measuring the Effect of Public Subsidies on Business R&D: A Critical Review of the Economic Literature.” Economic Record 86(274): 421-449.
http://dx.doi.org/10.1111/j.1475-4932.2009.00615.x
David, Paul A., Bronwyn H. Hall, and Andrew A. Toole. 2000. “Is Public R&D a Complement or a Substitute for Private R&D? A Review of the Econometric Evidence.” Research Policy 29(4): 497-529.
http://dx.doi.org/10.1016/S0048-7333(99)00087-6
De Meza, David. 2002. “Overlending?” Economic Journal 112(February): F17-F31.
http://dx.doi.org/10.1111/1468-0297.00681
De Meza, David and David C. Webb. 1987. “Too Much Investment: A Problem of Asymmetric Information.” Quarterly Journal of Economics 102(2): 281-292.
http://dx.doi.org/10.2307/1885064
Duflo, Esther and Michael Kremer. 2005. “Use of Randomization in the Evaluation of Development Effectiveness.” Pp. 205-232 in Evaluating Development Effectiveness, edited by G. Pitman, O. Feinstein, and G. Ingram. New Brunswick, NJ: Transaction Publishers.
Gallini, Nancy and Suzanne Scotchmer. 2002. “Intellectual Property: When Is It the Best Incentive Mechanism?” Pp. 51-78 in Innovation Policy and the Economy. Vol. 2, edited by A. Jaffe, J. Lerner, and S. Stern. Cambridge, MA: MIT Press.
Garciá-Quevedo, José. 2004. “Do Public Subsidies Complement Business R&D? A Meta-analysis of the Econometric Evidence.” KYKLOS 57(1): 87-102.
http://dx.doi.org/10.1111/j.0023-5962.2004.00244.x
Georghiou, L., Smith, K., Toivanen, O. and Ylä-Anttila, P. (2003) Evaluation of the Finnish Innovation Policy Support System. Ministry of Trade and Industry (Finland) Publications 5/2003.
Green, Jerry R. and Suzanne Scotchmer. 1995. “On the Division of Profit in Sequential Innovation.” RAND Journal of Economics 26(1): 20-33.
http://dx.doi.org/10.2307/2556033
Hall, Bronwyn H. 2002. “The Financing of Research and Development.” Oxford Review of Economic Policy 18(1): 35-51.
http://dx.doi.org/10.1093/oxrep/18.1.35
Hall, Bronwyn. H. and John Van Reenen. 2000. “How Effective Are Fiscal Incentives for R&D? A Review of the Evidence.” Research Policy 29(4-5): 449-469.
http://dx.doi.org/10.1016/S0048-7333(99)00085-2
Henry, Emeric and Carlos J. Ponce. 2011. ”Waiting to Imitate: On the Dynamic Pricing of Knowledge.” Journal of Political Economy 119(5): 959-981.
http://dx.doi.org/10.1086/662721
Holmström, Bengt and Jean Tirole. 1997. “Financial Intermediation, Loanable Funds, and the Real Sector.” Quarterly Journal of Economics 112(3): 663-691.
http://dx.doi.org/10.1162/003355397555316
Hopenhayn, Hugo A., Gerard Llobet, and Matthew F. Mitchell. 2006. “Rewarding Sequential Innovators: Prizes, Patents, and Buyouts.” Journal of Political Economy 114(6): 1041-1068.
http://dx.doi.org/10.1086/510562
Hyytinen, Ari and Mika Pajarinen. 2003. “Small Business Finance in Finland: A Descriptive Study.” Pp. 203-204 in Financial Systems and Firm Performance: Theoretical and Empirical Perspectives. ETLA B: 200, edited by A. Hyytinen and M. Pajarinen. Helsinki: Taloustieto.
Jaffe, Adam. B. and Josh Lerner. 2004. Innovations and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It. Princeton, NJ: Princeton University Press.
Klette, Tor J., Jarle Møen and Zvi Griliches. 2000. “Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies.” Research Policy 29 (4-5): 471-495.
http://dx.doi.org/10.1016/S0048-7333(99)00086-4
Kremer, Michael. 1998. “Patent Buyouts: A Mechanism for Encouraging Innovation.” Quarterly Journal of Economics 113(4): 1137-1168.
http://dx.doi.org/10.1162/003355398555865
Lerner, Josh. 2002. “When Bureaucrats Meet Entrepreneurs: The Design of Effective Public Venture Capital Programmes.” Economic Journal 112(February): F73-F84.
http://dx.doi.org/10.1111/1468-0297.00684
Lessig, Lawrence. 2004. Free Culture. New York, NY: Penguin Press.
Maurer, Stephen M. and Suzanne Scotchmer. 2004. “Procuring Knowledge.” Pp. 1-31 in Intellectual Property and Entrepreneurship: Advances in the Study of Entrepreneurship, Innovation and Growth. Vol. 15, edited by G. Libecap. Amsterdam: JAI Press (Elsevier).
Menell, Peter S. and Suzanne Scotchmer. 2007. “Intellectual Property.” Handbook of Law and Economics, edited by M. Polinsky and S. Shavell. Amsterdam: Elsevier.
http://dx.doi.org/10.1016/S1574-0730(07)02019-1
Mohnen, Pierre. and Boris Lokshin. 2010. “What Does It Take for an R&D Tax Incentive Policy to Be Effective?” Pp. 33-58, in Reforming Rules and Regulations, edited by V. Ghosal. Cambridge, MA: MIT Press.
Møen, Jarle. 2007. “Should Finland Introduce an R&D Tax Credit? Reflections Based on Experience with Norwegian R&D Policy.” ETLA Discussion Papers No. 1097.
Niinimäki, Juha-Pekka and Tuomas Takalo. 2007. “Benchmarking and Comparing Entrepreneurs with Incomplete Information.” Finnish Economic Papers 20(2): 91-103.
OECD. 2011. OECD Science, Technology and Industry Scoreboard 2011. OECD Publishing.
Parsons, Mark and Nicholas Phillips. 2007. ”An Evaluation of the Federal Tax Credit for Scientific Research and Experimental Development.” Department of Finance (Canada), Working Paper 2007-08.
Scotchmer, Suzanne. 2004a. “The Political Economy of Intellectual Property Treaties.” Journal of Law, Economics, and Organizations 20(2): 415-437.
http://dx.doi.org/10.1093/jleo/ewh040
Scotchmer, Suzanne. 2004b. Innovation and Incentives. Cambridge, MA: MIT Press.
Sobel, Dava. 1995. Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time. New York, NY: Walker.
Solow, Robert. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics 70(1): 65-94.
http://dx.doi.org/10.2307/1884513
Solow, Robert. 1957. “Technical Change and Aggregate Production Function.” Review of Economic and Statistics 39(3): 312-320.
http://dx.doi.org/10.2307/1926047
Stiglitz, Joseph E. and Andrew Weiss. 1981. “Credit Rationing in Markets with Imperfect Information.” American Economic Review 71(3): 393-410.
Takalo, Tuomas and Tanja Tanayama. 2010. “Adverse Selection and Financing of Innovation: Is There Need for R&D Subsidies?” Journal of Technology Transfer 35(1): 16-41.
http://dx.doi.org/10.1007/s10961-009-9112-8
Takalo, Tuomas, Tanja Tanayama, and Otto Toivanen. 2011. “Estimating the Benefits of Targeted R&D Subsidies.” Forthcoming in Review of Economics and Statistics.
Takalo, Tuomas, Tanja Tanayama, and Otto Toivanen. 2012. “Market Failures and the Additionality Effects of Public Support to Private R&D: Theory and Empirical Implications.” Paper presented at the Annual Meeting of the European Association for Research in Industrial Economics, September 4, Rome, Italy.
Toivanen, Otto. 2008. “National Innovation Policy in an International World – Perspectives from Finland.” Pp. 118-122 in Going Global: The Challenges for Knowledge-based Economies, edited by M. Squicciarini and T. Loikkanen. Publications of The Ministry of Employment and the Economy (Finland) 20/2008.
Veugelers, Reinhilde, et al. 2009. Evaluation of the Finnish National Innovation System- Full Report. Helsinki: Taloustieto.
Warda, Jacek. 2006. “Tax Treatment of Business Investments in Intellectual Assets: An International Comparison.” OECD Science Technlogy and Indusry Working Papers Number 2006/4.
Zúñica-Vicente, JoséÁngel, César Alonso-Borrego, Francisco J. Forcadell, and José I. Galan. 2012. “Assessing the Effect of Public Subsidies on Firm R&D Investment: A Survey.” Forthcoming in Journal of Economic Surveys
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Published
2012-11-06
How to Cite
Takalo, T. (2012). Rationales and Instruments for Public Innovation Policies. Journal of Reviews on Global Economics, 1, 157–167. https://doi.org/10.6000/1929-7092.2012.01.14
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