Political Market Failure? The Effect of Government Strength on Technology Policy in Industrialized Democracies

Abstract

Governments can implement technology policies that allow society to solve social problems at a lower cost. We argue that, in industrialized democracies, salient social problems provoke an effective technology policy response when the government is unified. The reason is that a unified government can easily strike the bargains required to secure political support for new technology programs. We test this theory against data on public energy R&D in 22 OECD countries from 1980-2007. Using energy intensity as a proxy for problem salience, we find that as government fractionalization increases in a country, the sensitivity of public energy R&D to wasteful energy use declines. The analysis reveals a new reason for ineffective technology policies and contributes to the broad literature on the sources of political market failure.

Keywords: Technology policy, political economy, energy intensity, government strength, comparative politics environmental policy

JEL Classification: D72, H41, H54