MarketFailureFramework:PublicGoodsTechnischeUniversiteitTUEindhoveneUniversity of Technology9/23/2013PAGE15EconomicsofInnovation2013
Market Failure Framework: Public Goods Economics of Innovation 2013 9/23/2013 PAGE 15
Publicgoods rationaleforgovernmentfundedresearchGovernmentfundedresearchhas publicgoodscharacteristics:Knowledge is a public good:as it is non-rival (i.e. others can use theknowledgewithout detractingfrom theknowledgeof theproducers)and non-excludable (i.e.other users cannotbe stopped from usingthe information).Government-fundedresearchProvideseconomicallyuseful information,freely availabletoallfirmsIncreasingfundsforbasicresearch,governmentcanexpandthepoolofeconomicallyusefulinformationThisinformationisdurableand costlesstouse.Governmentfundingovercomesthe reluctance offirmstofund theirownresearch(ifappropriabilityisnotguaranteed)Technische UniversiteitTUEindhovenUniversityofTechnologyPAGE16EconomicsofInnovation20139/23/2013
Public goods rationale for government funded research • Government funded research has public goods characteristics: • Knowledge is a public good: as it is non-rival (i.e. others can use the knowledge without detracting from the knowledge of the producers) and non-excludable (i.e. other users cannot be stopped from using the information). • Government-funded research • Provides economically useful information, freely available to all firms • Increasing funds for basic research, government can expand the pool of economically useful information • This information is durable and costless to use. • Government funding overcomes the reluctance of firms to fund their own research (if appropriability is not guaranteed) Economics of Innovation 2013 9/23/2013 PAGE 16