Market Failure, Market Dynamics, and Entrepreneurial Innovation by Environmental Ventures

Abstract

Recent contributions to understanding the role of enterprise in environmental innovation have inferred that market failures are an unexpected source of entrepreneurial opportunities for ventures with environmental innovations. This inquiry used iterations between theory and evidence to explore this issue. The concept of market failure is explained, and explored in relation to evidence on opportunities targeted and constraints reported by UK environmental ventures including low carbon energy innovators. In the development of these young firms, some instances of market failures provided business opportunities, but other instances seriously impeded attempts at environmental innovation. The concept of market failure could not explain these differences. This suggested that the key question is how innovative environmental enterprises have in practice overcome impediments associated with market failure. This issue was explored through case studies. The logic of the inquiry showed that it was innovative responses to market dynamics rather than the existence of market failures that created business opportunities. The concept of market failure is undermined by certain theoretical assumptions and empirical limitations discussed in this chapter.

Keywords: environmental innovation, new ventures, market failure, market dynamics

JEL Classification: M13, O3