The Social Costs of Innovation Policy. (October 2016)

• Record Type: Journal Article
• Authors: Davidson, Sinclair; Potts, Jason
• Is Part Of: Economic affairs. Volume 36:Number 3(2016:Sep.)
• Page Start: 282
• Page End: 293
• Publication Date: 2016-10
• Subjects: innovation policy -- institutional economics -- market failure -- rent‐seeking; Great Britain -- Economic policy -- 1945-1964 -- Periodicals; Great Britain -- Economic conditions -- 1945-1964 -- Periodicals; Economics -- Periodicals; 330.9
• DOI: 10.1111/ecaf.12187
• Languages: English
• ISSNs: 0265-0665

Abstract

Abstract: Innovation policy is designed to produce social benefits by solving a market failure problem associated with private investment in new knowledge. Yet the social costs of these policy interventions are routinely ignored. We use the Djankov et al. (2003) institutional possibility frontier model to analyse the trade‐offs between the social costs of disorder and those of dictatorship that particular innovation policies impose. We show how different innovation policies impose different types of social costs. We conclude that the case for public support for innovation policies is often both distorted and overstated because of failure to account for social costs.