Masters Course: Innovation SciencesMarketfailureandGovernmentIncentives forInnovationDr.MScBertSadowskiTechnischeUniversiteitTUeEindhovenUniversity of TechnologyWhereinnovationstarts
Market failure and Government Incentives for Innovation Dr. MSc Bert Sadowski Masters Course: Innovation Sciences
StructureThetensionforpublicpolicyTheoretical Perspectives on MarketFailuresMarketFailure:PublicGoodsMarket Failure:SpilloversMarket Failure:Negative ExternalitiesMarketFailure:PositiveExternalitiesHowto subsidies workSummaryTechnische UniversiteitTUEindhoveneUniversity of TechnologyPAGE19/23/2013EconomicsofInnovation2013
Structure • The tension for public policy • Theoretical Perspectives on Market Failures • Market Failure: Public Goods • Market Failure: Spillovers • Market Failure: Negative Externalities • Market Failure: Positive Externalities • How to subsidies work • Summary Economics of Innovation 2013 9/23/2013 PAGE 1
Marketfailureisadifficultconceptbecauseof differenttheoreticalassumptions (justsomeagreement across economictraditions)as it is linked to political &ideological traditions (e.g.neo-conservative)!Technische UniversiteitTUEindhoveneUniversityofTechnologyPAGE2EconomicsofInnovation20139/23/2013
Market failure is a difficult concept because of different theoretical assumptions (just some agreement across economic traditions) as it is linked to political & ideological traditions (e.g. neo-conservative)! Economics of Innovation 2013 9/23/2013 PAGE 2
The tension of public policyFramework:Framework:StateAidCompetition PolicyMarket failureGovernmentfailureEU Legislation:EULegislation:StateAid(Art107-Dominant positionof109TFEU)firms (Art102TFEU)CartelsCompatibilitytestMergerRegulations(e.g. barriers to entry,Liberalizationnumber ofcompetitors)Technische UniversiteitTUEindhoveneUniversity of Technology9/23/2013PAGE3EconomicsofInnovation2013
The tension of public policy Economics of Innovation 2013 9/23/2013 PAGE 3 Market failure Government failure Framework: Competition Policy Framework: State Aid EU Legislation: • Dominant position of firms (Art102 TFEU) • Cartels • Merger Regulations • Liberalization EU Legislation: • State Aid (Art107 – 109 TFEU) • Compatibility test (e.g. barriers to entry, number of competitors)
Recenttrends onmarket liberalizationLate1980stolate1990s:MarketswilldeliverMarketsaremostefficientwayofallocatingresourcesandproviding incentivesto companies(e.g.opening uptelecom&energy markets)Since2ooo:MarketsmightnotdeliverInvestmentincentivestolowinsomesegmentsofthemarkets(e.g.energytransmissionorlocallooptelecom).Since2009-2010:MarketswillnotdeliverNationalizationofcompaniesandactiveindustrial policy(e.gRemedyforaseriousdisturbance in theeconomyN19/2010ABN-AMROandFortis)However,neo-conservativepoliciessincethe1990shadtheeffectthatthereislessgovernmentintervention!Technische UniversiteitTUEindhovenUniversityofTechnologyPAGE4EconomicsofInnovation20139/23/2013
Recent trends on market liberalization • Late 1980s to late 1990s: Markets will deliver • Markets are most efficient way of allocating resources and providing incentives to companies (e.g. opening up telecom & energy markets) • Since 2000: Markets might not deliver • Investment incentives to low in some segments of the markets (e.g. energy transmission or local loop telecom) • Since 2009 – 2010: Markets will not deliver • Nationalization of companies and active industrial policy (e.g. Remedy for a serious disturbance in the economy N19/2010 ABN-AMRO and Fortis) Economics of Innovation 2013 9/23/2013 PAGE 4 However, neo-conservative policies since the 1990s had the effect that there is less government intervention!