This document discusses why innovation and government support for innovation are important. It provides three key reasons why governments should support innovation: 1) To address market failures in the private sector that discourage innovation such as high costs and risks of innovating. 2) To address coordination failures and help different actors in the innovation system work together effectively. 3) While acknowledging that governments can also fail, more research is needed to better understand the causal effects of innovation policies and how governments can improve data collection and evaluation to design more effective policies.

2. Gaétan de Rassenfosse @gderasse
École polytechnique fédérale de Lausanne

3. Innovation is the introduction of something new
A new/improved product or service, a new way of producing/organizing something

4. Why is Innovation Important?

5. Traditional View – Economic Growth

6. More of the same without innovation
Traditional View – Economic Growth

7. Up to the point at which sources of economic growth are exhausted
Traditional View – Economic Growth

8. Traditional View – Economic Growth

9. Traditional View – Economic Growth
Creation of new sources of growth

10. Traditional View – Economic Growth
Increase in quality / decrease in price with innovation

11. Traditional View – Economic Growth
Leading to an increase in the productivity of the economy

12. Modern View – Social Welfare & Human Progress
The case for innovation is even stronger

13. Why should Government
Support Innovation?

14. Market failures occur when private incentives are not aligned with social incentives
1. Address Market Failures
Individuals have an incentive to rush out of a burning car, possibly stepping on others

15. Government can intervene and evacuate people in an orderly way
1. Address Market Failures

16. 1. Address Market Failures
The innovation process is subject to market failures

17. 1. Address Market Failures
Innovation is costly…

18. 1. Address Market Failures
… innovation is risky…

19. 1. Address Market Failures
… and innovation is prone to imitation

20. 1. Address Market Failures
Thinking of all these hurdles, the inventor may decide not to innovate

21. Government can intervene by granting a patent, that is, a temporary monopoly right
1. Address Market Failures

22. The extra benefits provided by the patent may induce inventors to innovate
1. Address Market Failures

23. Left alone, the various actors of the innovation system will coordinate sub-optimally
2. Address Coordination Failures

24. Government can intervene by strengthening the links…
2. Address Coordination Failures

25. … ensuring that coordination occurs…
2. Address Coordination Failures

26. … and helping actors navigate through the system
2. Address Coordination Failures

27. However, Government Should not be a Burden
Government sets the legislation under which inventors and entrepreneurs operate

28. Some People Even Talk of Government Failure
Politicians have a tendency to promote their own policies,
which are often complex and rarely called into question

29. What do we Know About the
Efficiency of Innovation Policy?

30. Not much
Innovation policy is the poor relation of policy research

31. We know little about the causal effect of innovation policy
The causal effect measures how much of the outcome is due to the treatment

32. The ‘treatment’ is an innovation policy intervention
We know little about the causal effect of innovation policy

33. Looking Ahead

34. Looking ahead
We need government to open its data

35. We need government to improve the quality of its data
Looking ahead

36. We need government to engage more with the academic community
Looking ahead

37. Thank you
The presentation is available at
www.slideshare.net/gderasse