Microeconomic Policies to Promote
This chapter discusses microeconomic policy with respect to promoting firm-level innovation. The focus is on two main areas: intellectual property rights (IPRs) and R&D. These are normally considered to be the front line of policy relating to innovation. Policies surrounding IPRs are, in short, controversial. It has been said that if the patent system did not exist it would be very difficult to justify creating it.1 This statement sums up the lack of understanding about the overall effects of the patent system and other forms of IPRs. Nevertheless, policy makers must attempt to unravel some of the issues at stake and how these relate to the wider objective of promoting innovation. R&D policy is also a hotly debated topic. More and more OECD countries are introducing R&D tax subsidies, in effect creating competition between countries in offering the best location for R&D. There has also been a long history of R&D grants and the financing of basic research. This chapter reviews the evidence surrounding policies that aim to encourage R&D expenditure by firms. These two main topics––– IPRs and R&D—take up most of the space in this chapter. However, section 11.4 provides a brief overview of some other relevant policy areas that influence innovation: universities, SME policy, competition policy, standards, and procurement.
This is a difficult question to answer and one that elicits very different opinions from different people. In this section we provide an overview of the debates and issues concerning each of the main types of intellectual property.
1 See Hall (2007), who attributes this statement to Penrose (1951).