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Chapter 13: Q.12 (page 316)

What can government do to encourage the development of new technology?

Short Answer

Expert verified

The government attempts to internalize some externalities by employing patent and trade secret laws.

Step by step solution

01

Content Introduction

When a firm builds a facility or buys machinery, it reaps all of the financial benefits that come with the investment. However, when a firm invests in modern technology, the private benefits it earns, or profits, are only a small portion of the total social benefits. This deters them from increasing their investment in innovation.

02

Content Explanation

When it comes to technology, government policymakers must frequently strike a balance. Patents, for example, provide an incentive for innovators, but they should be limited to truly innovative ideas and issued for a limited time. Direct budget allocation for R&D, tax subsidies for R&D, intellectual property rights, and forming collaborative partnerships between universities and the private sector are just a few of the policy instruments available to the government for accelerating the amount of return on modern technology and enabling its development.

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