Social Costs and the Institutions of Innovation Policy

25 Pages Posted: 16 Feb 2015

Date Written: February 15, 2015


Innovation policy is normally evaluated from the welfare perspective of market failure, and therefore focuses on social benefits. This paper adapts the Djankov et al. (2003) model of comparative social costs associated with any institution to analyse the specific institutions of innovation policy. Six different innovation policy interventions are arrayed along an Institutional Possibility Frontier. We consider the trade-offs as we move around that frontier, and suggest further applications of this model. We conclude by examining the rents available, and to whom, at different points around the frontier. Our approach provides an institutional efficiency-based approach to the evaluation of mixes of innovation policy.

Keywords: innovation policy, comparative economic institutions, new institutional economics, Schumpeterian economics, market failure, rent-seeking

JEL Classification: B52, B53, D02, D04, E02, E60, O3, P16

Suggested Citation

Davidson, Sinclair and Potts, Jason, Social Costs and the Institutions of Innovation Policy (February 15, 2015). Available at SSRN: or

Sinclair Davidson

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000

Jason Potts (Contact Author)

RMIT University ( email )

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