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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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Most popular questions from this chapter

Name two public goods and explain why they are public goods.

Radio stations, tornado sirens, light houses, and street lights are all public goods in that all are nonrivalrous and nonexclusionary. Therefore why does the government provide tornado sirens, street lights and light houses but not radio stations (other than PBS stations)?

Education provides both private benefits to those who receive it and broader social benefits for the economy as a whole. Think about the types of policies a government can follow to address the issue of positive spillovers in technology and then suggest a parallel set of policies that governments could follow for addressing positive externalities in education.

Will the demand for borrowing and investing in R&D be higher or lower if there are no external benefits?

Why might private markets tend to provide too few incentives for the development of new technology?
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