A New Institutional Approach to Innovation Policy

Abstract

Modern research and innovation policy is largely based in neoclassical welfare economics, in which the diagnosis of market failure in the production of new information is translated into a case for innovation policy. Both New Institutional and Public Choice economics criticize this approach because it tends to assume the policy interventions are largely costless, and produce only benefits. An alternative policy model is proposed that focuses on minimizing the social costs of innovation policy through efficient choice of institutions. We review the recently released National Innovation & Science Agenda through this lens.

Keywords: innovation policy, new institutional economics, institutional possibility frontier

JEL Classification: H41, O38, P50