Toolkit of policies to promote innovation

Question 1

1. What is the motivation of the paper?

Answer 1

motivated by

1.persistant slowdown in productivity groth experienced by US and other developed nations since the late 1970s

2. Productivity decline has been associated with disappointing wage growth for most US workers

Question 2

what should goverments promote innovation

Answer 2

The paper notes 4 key points

1.knowledge spillovers: innovation generates knowledge spillovers, firms benefit without paying full R&D costs, ideas are difficult to monetize even with a well designed intellectual property rights system, market economy=too much innovation, business stealing effect

2.finanical market failures: Innovation faces unique financing challenges that can limit private R&D investment, intangible nature of innovation makes it difficult to use as collateral for loans, while information asymmetries complicate equity financing, before patenting, the secrecy required makes it hard to attract funding without revealing potentially stealable ideas

3. property rights

Question 3

what are the main policy tools to promote innovation?

Answer 3

1. Tax policies for R&D: aimed at reducing costs of conducting R&D and encouraging investment

2.Goverment research grants: funding programs directly supporting research, especially targeted at projects with high social returns

3.human capital polices: initiatives to increase supply of workers with the skills they need for innovation, particularly in science technology engineering and math (STEM fields)

4.Intellectal property rights:patent, copyright, and trademark systems that provide inventors with temporary exclusive rights to their innovations

5.Competition policies: measures related to product market competition and international trade, competition stimulates innovation lowers barriers to entry, entrants have no rents to use so it can engage in destructive innovation

Question 4

How effective are these tools in promoting innovation?

Answer 4

• Tax incentives, while they lower the cost of R&D, they can be difficult to target at innovations generating the highest social benefits and may inadvertently support duplicative business stealing ideas

2. government grants do address knowledge spillovers and target socially valuable research, but may be prone to selection bias
3. Huan capital policies including expanding supply of STEM trained individuals, increase innovation directly and reduce cost of R&D while addressing wage inequality
4. intellectual policies protect innovators by granting exclusive rights, but their effectiveness is debated, with some arguing they may even hinder innovation in certain cases, social cost>?

5* ompetition policies: empirical evidence suggests that competition typically increases innovation, especially in markets with low competition initially, however the relationship between competition and innovation can vary, it could reduce overall innoaton