A Toolkit of Policies to Promote Innovation

Economic theory suggests that market economies are likely to underprovide innovation because of the public good nature of knowledge. Empirical evidence from the United States and other advanced economies supports this idea. We summarize the pros and cons of different policy instruments for promoting...

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Bibliographic Details
Published in:The Journal of economic perspectives 2019-08, Vol.33 (3), p.163-184
Main Authors: Bloom, Nicholas, Van Reenen, John, Williams, Heidi
Format: Article
Language:English
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Summary:Economic theory suggests that market economies are likely to underprovide innovation because of the public good nature of knowledge. Empirical evidence from the United States and other advanced economies supports this idea. We summarize the pros and cons of different policy instruments for promoting innovation and provide a basic "toolkit" describing which policies are most effective according to our reading of the evidence. In the short run, R&D tax credits and direct public funding seem the most productive, but in the longer run, increasing the supply of human capital (for example, relaxing immigration rules or expanding university STEM admissions) is likely more effective.
ISSN:0895-3309
1944-7965
DOI:10.1257/jep.33.3.163