A friend of mine believes that the desire for recognition and admiration is generally something to be overcome, not acted on. He maintains that this desire is a detrimental vestige of our simian ancestry, a maladaptive tendency in a world in which generalized status-seeking is only worthwhile for aspiring politicians, celebrities, and the like. In other words, people like me should stop thinking with their "chimp brains" and should instead focus on attaining more substantive returns such as knowledge about an interesting subject, better financial discipline, or the esteem of a few close friends. (Or we should become aspiring politicians, celebrities, and the like.) For instance, I shouldn't care if someone is wrong on the internet, except insofar as it shapes my position on an issue worth taking a position on.
As a blogger (someone is right on the internet!), simiophile, and all-around highly competitive person, this view ruffled my feathers. I wondered whether I'm indeed unduly concerned with what an unduly broad group of people think of me -- a group that surely includes some people who, taking after Howard Roark, don't think of me. After all, I was basically serious when, in my first post (on why I'm blogging), I wrote: "I want to show off. (It’s okay now that I admit it, right?) I want you to think I’m even more insightful, funny, interesting, reasonable, and infallible."
On reflection, I agree with my friend that I would be better off if my chimp brain were less active. Although I believe that most activities and interactions are inevitably competitive and relevant to one's status (think of, say, any conversation in which you were striving to be funny, smart, and/or sociable, even if you weren't consciously trying to outperform your friends), I would like to approach them in a less competitive and status-seeking manner. I would also like to devote more time and energy towards activities that provide me with non-status-based rewards (e.g., reading up on issues instead of blogging about them, assuming blogging even advances my status). But these things are easier said than done, and it's not clear to me what the optimal balance is -- competitiveness and status-seeking are not inherently bad things.
That said, I want to endeavor to act more in accordance with the higher parts of my brain. For one, I want to pick my intellectual battles more wisely. I've always been reluctant to end an argument by "agreeing to disagree," because I believe that the vast majority of disagreements between reasonable people are not the result of differences in values, of which true impasses are made. Rather, I think that given enough effort and patience, reasonable people can pin down and work out the empirical and/or logical differences that underlie their disagreements. But putting in -- and demanding -- such effort and patience is not always worth it; it depends on the importance of the issue in question and the characteristics of the parties, and it risks breeding animosity. Accordingly, I want to keep in mind that agreeing to disagree does not necessarily entail writing off one's interlocutor as unreasonable, irrational, or both (except on an internet forum) -- it can simply be the result of the mature recognition that the truth is not worth pursuing at all costs.
A second practical example of the more elevated thinking to which I aspire is, frankly, having more reasonable expectations about the amount of attention I can get by demanding it. To quote my initial post again, I wrote that "I'm always happy to devote some time to the works of friends; there's something markedly more interesting about the products of minds with which I am familiar." (Naturally, I made this statement in the context of blegging for readers.) Perhaps this is a common sentiment, but I feel it's particularly strong in me. For example, I would be eager to look at a friend's paintings or listen to a friend's music, even if I didn't expect them to be dripping with artistic merit (feel free to call me on this). Indeed, I feel compelled to read my friends' blogs (and, until a recent bout of sensibility, Google Reader feeds) in their entirety, even if not every post is my cup of tea. On the other hand, most people I know are much more selective in their attentions. They're willing to give my creations and recommendations some precedence, but they're more willing to just pursue their interests. Ultimately, I shouldn't expect others to share my interests so closely. People, no matter how compatible, are inescapably separated by myriad differences in genes and environment. And we're all full of foibles. Healthy relationships of all kinds thus involve tolerance, humility, and sacrifices. This, too, I will keep in mind.
In light of the above, this will probably be my last post. Thanks for reading.
August 26, 2010
August 24, 2010
In the Backseat
You may have come across this Pulitzer Prize-winning article about caring parents who carelessly leave their babies to die in their hot cars. The article rekindled my anger at the moralizing masses (likely the same people who make it impossible for state legislatures and prison wardens to end the counterproductive, torturous, and widespread practice of long-term solitary confinement) and sparked the following rants, culled from a couple of emails I wrote.
Most people's reactions to these cases ("frothing vitriol" in the author's words) -- like most people and their reactions to most bad things -- are unreasonable and disgusting. People need to be taught to reason about emotional issues. Why don't schools teach subjects such as personal finance and practical psychology (which, of course, has implications for personal finance)? I've long believed that understanding one's limitations is a significant step in freeing oneself from them. For example, I've fortunately always been disinclined to make the fundamental attribution error, but learning about it (in high school) -- about how demonstrably flawed most people's judgments are -- really hammered the point home. Unfortunately my psychology teacher didn't emphasize that the experiments we studied are revealing about how we are inclined to think and act in the real world. Although this observation is obvious to us -- it's the whole idea of experimental psychology -- that doesn't mean it shouldn't be underscored in the classroom. A little preaching can be a good thing.
Also, we should have trained, vetted, professional jurors.
***
Basically, it's essential to think about one's own thinking -- to metacogitate -- and to not just react like so many people do. I think the main reason why we prosecute 60% of the parents who unintentionally leave their babies to die in their cars is because people think they could never do something like that, that it's something only a monster or a reckless person could do. That's not true, and prosecuting the parents is counterproductive -- it costs society resources that could be used to prosecute real criminals; it further ruins the lives of these parents and the rest of their families (including any other kids they have to care for); and it encourages a moralistic, as opposed to a practical, justice system. People often talk about being willing to leave certain matters "in God's hands." Well, this is precisely the kind of situation where the human justice system should lay off.
Most people's reactions to these cases ("frothing vitriol" in the author's words) -- like most people and their reactions to most bad things -- are unreasonable and disgusting. People need to be taught to reason about emotional issues. Why don't schools teach subjects such as personal finance and practical psychology (which, of course, has implications for personal finance)? I've long believed that understanding one's limitations is a significant step in freeing oneself from them. For example, I've fortunately always been disinclined to make the fundamental attribution error, but learning about it (in high school) -- about how demonstrably flawed most people's judgments are -- really hammered the point home. Unfortunately my psychology teacher didn't emphasize that the experiments we studied are revealing about how we are inclined to think and act in the real world. Although this observation is obvious to us -- it's the whole idea of experimental psychology -- that doesn't mean it shouldn't be underscored in the classroom. A little preaching can be a good thing.
Also, we should have trained, vetted, professional jurors.
***
Basically, it's essential to think about one's own thinking -- to metacogitate -- and to not just react like so many people do. I think the main reason why we prosecute 60% of the parents who unintentionally leave their babies to die in their cars is because people think they could never do something like that, that it's something only a monster or a reckless person could do. That's not true, and prosecuting the parents is counterproductive -- it costs society resources that could be used to prosecute real criminals; it further ruins the lives of these parents and the rest of their families (including any other kids they have to care for); and it encourages a moralistic, as opposed to a practical, justice system. People often talk about being willing to leave certain matters "in God's hands." Well, this is precisely the kind of situation where the human justice system should lay off.
August 12, 2010
The Economic Justifications for Government Support of Technological Advancement
The following is culled from a paper I wrote (footnotes omitted):
The development and deployment of technologies for combating climate change should not be left to the private sector alone, even if governments were to take the essential step of pricing the externality of greenhouse gas emissions. Economics demonstrates that implementing a carbon tax or an emissions permit trading system is the most cost-effective method of achieving the indispensable goal of inducing private actors to factor the social cost of emissions into their decisions. Instituting such a policy is the single most significant step that governments can take to mitigate climate change. But it is a necessary step, not a sufficient one. For economics also demonstrates that the technology sector is plagued by its own set of market failures, which entail that emissions pricing alone will not give firms the optimal incentive to develop and deploy technologies for producing cleaner energy. In turn, the marginal cost of achieving a given unit of emissions reduction will be higher than is ideal. The public sector must intervene in order to ensure the efficient level of technological investment. As Adam B. Jaffe, Richard G. Newell, and Robert N. Stavins aptly recapitulate, we should
The first subsection below explicates the failures in the R&D market that justify public support. The second subsection deals specifically with the related, but distinct, set of market failures that impede the private deployment and diffusion of clean energy technology.
Failures in the Market for Research and Development
The primary failure in the R&D market is that technological innovation creates positive externalities in the form of “knowledge spillovers,” so the market produces too little innovation. R&D generates knowledge that has the characteristics of a public good: one individual’s consumption of the good does not reduce the amount of the good available for consumption by others, and no one can effectively be excluded from using the good. Because firms cannot capture all of the benefits of R&D, they have socially suboptimal incentives to engage in it. Some studies of commercial innovation have concluded that, on average, originators only appropriate about half of the gains from R&D. Hence the value of government intervention in the market.
A second basis for intervention is that most of the benefits of climate change mitigation are so long-term as to be outside the planning horizons of private funding instruments. Private firms are obligated to focus on private costs, benefits, and discount rates in order to satisfy their shareholders. This can result in insufficient emphasis on returns, however valuable, that will not materialize until far into the future, when many shareholders have reached the Keynesian long-run. Moreover, these issues are compounded by the considerable uncertainty – and perceived uncertainty – about climate change, which renders long-term returns impossible to precisely quantify. Several studies have found that the “implicit discount rates” that firms use when making decisions about investment in long-term climate change mitigation are frequently much higher than market interest rates due to various market barriers and failures, such as inadequate information. Firms are generally suboptimally aware of energy conservation opportunities and often lack the expertise necessary to implement them – another instance of the underprovision of the public good of knowledge.
A final impediment to R&D funding is the asymmetry of information between innovators and potential investors about the prospects of new technologies. Innovators tend to be in a better position to assess the potential of their work, so favorable assessments are usually met with skepticism and demands for greater risk premiums. This intensifies the knowledge spillover problem because subsequent producers of a successful technology will be able to obtain financing on better terms. All of the above difficulties are surely magnified in today’s credit-constrained market, preventing even more of the up-front funding that R&D requires.
One means of addressing the mismatch of private and social returns is the enforcement of intellectual property rights. For example, patents grant innovators temporary monopolies on their innovations, which they can use to charge monopoly prices and thereby possibly recoup their share of the full social value of their innovations. In the absence of such protections, creators who market new technologies will likely soon face competition from others who take advantage of the technologies’ public availability and produce their own versions. Although the original developer may have a head start in marketing her development and may be able to command a greater market share due to her status as originator, these market-based incentives are tenuous, ephemeral, and uncertain. For instance, it is equally likely in theory that an imitator will be able to produce the good or service more cheaply or at a higher quality. It is also likely that consumers will anticipate the entrance of such competitors and therefore refrain from consumption during the innovator’s initial marketing. Thus economic analysis supports the use of intellectual property rights to ensure that inventors will be adequately driven by the profit motive. Patents are certainly a key component of any pro-innovation policy scheme.
However, intellectual property rights are neither a sufficient nor always desirable response to the failures of the R&D market. To begin with, much of the value of a given R&D project may consist of knowledge that is, for good reason, outside the scope of the intellectual property rights regime. The Stern Review offers the example of “tacit knowledge,” which is vague and does not satisfy the requirements of patentability. Another concern is that due to the inherent uncertainty of legal regulation, patents and the like do not always preclude all of the competition that prevents innovators from reaping their full rewards. Additionally, the prospect of monopoly pricing may not be a sufficient incentive to encourage risky, large-scale basic research. Analogously, pharmaceutical companies are known not to develop treatments for diseases that affect a sufficiently small segment of the population. As for the undesirability of robust intellectual property rights protection in the R&D context, one downside is that it can hinder or even cripple progress by preventing firms from building on each other’s successes and learning from each other’s failures. The early stages of innovation are often characterized by a high degree of uncertainty due to the lack of a well-defined path to progress. When there are multiple R&D avenues worth exploring, it pays to have multiple firms collaborating. Industry-wide collaboration is also vital for achieving big breakthroughs in basic science, such as those necessary to commercialize hydrogen fuel cell automobiles, which a single company is ill-equipped to deliver. This cooperation is unlikely to materialize if individual firms are given the incentive to keep their efforts under wraps while hoping to free-ride on the work of others.
In light of these concerns, many economists advocate direct government subsidization of technological innovation, especially at the level of R&D. This funding can take several forms, such as government-performed research, government contracts, grants, tax breaks, technology prizes, and incentives for students to study science and engineering. Of course, the government and private organizations can tailor these options to meet their needs in a given situation. Economists also promote government efforts to remedy the excessive myopia and uncertainty with which private decisions about long-term investment in climate change mitigation are fraught. These programs take a variety of forms, including educational workshops and training programs for professionals, advertising, product labeling, and energy audits of manufacturing plants.
Failures in the Market for Deployment and Diffusion
Although economists more strongly and consistently back government support for R&D, many also call for government responses to imperfections in the markets for technology deployment and diffusion. Successful R&D does not guarantee that the resulting innovation will immediately be deployed; market forces also govern firms’ decisions about technological implementation.
Economists have identified that firms in an industry may face a collective action problem when deciding whether to adopt new technologies that exhibit “dynamic increasing returns.” This phenomenon exists when the value of a technology to one user depends on how many other users have adopted the technology; in other words, the more users there are, the better off they will be. There are three types of positive externalities that generate dynamic increasing returns: “learning-by-using,” “learning-by-doing,” and “network externalities.” As in the R&D context, these externalities may give rise to a collective action problem because each firm can partake of the public fruits produced by the first adopters of a new technology; in turn, each firm is disinclined to be at the vanguard of technological adoption, and the deployment of worthwhile technology is unproductively delayed. Learning-by-using refers to the fact that the initial users of an innovation generate valuable public information about it, such as its existence, characteristics, and performance. Learning-by-doing, the “supply-side counterpart,” refers to the fact that production costs fall as firms gain experience, which they cannot fully keep to themselves. For one, a product itself usually provides insight into its production. Lastly, network externalities exist when the value of an innovation increases as others adopt a compatible product. Telephone and computer networks are obvious examples.
In addition to these externalities, certain characteristics of the power generation sector further deter and postpone the deployment of technologies that are expensive and commercially unproven. The sector is subject to a high degree of regulation and tends to be quite risk averse. Second, technologies that do not easily fit into existing infrastructures such as power grids and gas stations are unlikely to enter the market until demand rises and/or costs fall enough for the industry to act en masse. For example, national grids are usually designed with central, as opposed to distributed, power plants in mind, and CCS will require the construction of new pipelines. Third, there are market distortions such as the aforementioned fossil fuel subsidies, which make it even harder for new technologies to compete. Finally, energy markets tend not to be particularly competitive. The oil-market is a well-known oligopoly, dominated by a multinational cartel, and electricity generation is a natural monopoly, in that a single firm can provide power at the lowest social cost due to economies of scale.
These problems can be mitigated or eliminated if there exists a niche market that is willing to pay a high price for early access to an innovation, as was the case with the first mobile phones. Niche markets can enable the initial producer of an advanced technology to profit despite subsequently facing competition from other firms that have the benefit of following in its footsteps and taking advantage of the externalities described above. Otherwise, originators must hope that they can eventually turn a profit – for instance by initially selling at a loss and then maintaining a dominant market share as costs fall and the market expands, perhaps by virtue of customer goodwill. Neither of these scenarios is likely in the energy market due to the homogenous nature of the end product (e.g., electricity), which makes it difficult for innovators to distinguish themselves. Although niche markets for carbon-free electricity exist, they are too small to make the costly implementation of advanced technology worthwhile. Consequently, established technologies can become locked-in, progressing only incrementally. At worst, the Stern Review notes that “energy generation technologies can fall into a ‘valley of death’, where despite a concept being shown to work and have long-term profit potential they fail to find a market.”
There are several desirable public policy responses that can be tailored to different problems in different markets. As in the R&D context, various types of subsidies and information programs can counteract market failures. The government can also use energy efficiency standards, such as emissions quotas, to force firms in an industry to implement environmentally friendly technologies.
The development and deployment of technologies for combating climate change should not be left to the private sector alone, even if governments were to take the essential step of pricing the externality of greenhouse gas emissions. Economics demonstrates that implementing a carbon tax or an emissions permit trading system is the most cost-effective method of achieving the indispensable goal of inducing private actors to factor the social cost of emissions into their decisions. Instituting such a policy is the single most significant step that governments can take to mitigate climate change. But it is a necessary step, not a sufficient one. For economics also demonstrates that the technology sector is plagued by its own set of market failures, which entail that emissions pricing alone will not give firms the optimal incentive to develop and deploy technologies for producing cleaner energy. In turn, the marginal cost of achieving a given unit of emissions reduction will be higher than is ideal. The public sector must intervene in order to ensure the efficient level of technological investment. As Adam B. Jaffe, Richard G. Newell, and Robert N. Stavins aptly recapitulate, we should
The importance of factoring technological change into an analysis of the cost of abating greenhouse gas emissions should not be underestimated. As explained previously, the development of new technologies, the commercialization of viable innovations, and the employment of readily available advancements make up the world’s toolkit for enabling the benefits of ravenous energy consumption not to come at the cost of our planet and our future. The aforementioned authors note that “the single largest source of difference among modelers’ predictions of the cost of climate policy is often differences in assumptions about the future rate and direction of technological change.” Good technology policy should render these assumptions more favorable, thereby lowering the expected cost of emissions abatement.view technological change relative to the environment as occurring at the nexus of two distinct and important market failures: pollution represents a negative externality, and new technology generates positive externalities. Hence, in the absence of public policy, new technology for pollution reduction is, from an analytical perspective, doubly underprovided by markets.
The first subsection below explicates the failures in the R&D market that justify public support. The second subsection deals specifically with the related, but distinct, set of market failures that impede the private deployment and diffusion of clean energy technology.
Failures in the Market for Research and Development
The primary failure in the R&D market is that technological innovation creates positive externalities in the form of “knowledge spillovers,” so the market produces too little innovation. R&D generates knowledge that has the characteristics of a public good: one individual’s consumption of the good does not reduce the amount of the good available for consumption by others, and no one can effectively be excluded from using the good. Because firms cannot capture all of the benefits of R&D, they have socially suboptimal incentives to engage in it. Some studies of commercial innovation have concluded that, on average, originators only appropriate about half of the gains from R&D. Hence the value of government intervention in the market.
A second basis for intervention is that most of the benefits of climate change mitigation are so long-term as to be outside the planning horizons of private funding instruments. Private firms are obligated to focus on private costs, benefits, and discount rates in order to satisfy their shareholders. This can result in insufficient emphasis on returns, however valuable, that will not materialize until far into the future, when many shareholders have reached the Keynesian long-run. Moreover, these issues are compounded by the considerable uncertainty – and perceived uncertainty – about climate change, which renders long-term returns impossible to precisely quantify. Several studies have found that the “implicit discount rates” that firms use when making decisions about investment in long-term climate change mitigation are frequently much higher than market interest rates due to various market barriers and failures, such as inadequate information. Firms are generally suboptimally aware of energy conservation opportunities and often lack the expertise necessary to implement them – another instance of the underprovision of the public good of knowledge.
A final impediment to R&D funding is the asymmetry of information between innovators and potential investors about the prospects of new technologies. Innovators tend to be in a better position to assess the potential of their work, so favorable assessments are usually met with skepticism and demands for greater risk premiums. This intensifies the knowledge spillover problem because subsequent producers of a successful technology will be able to obtain financing on better terms. All of the above difficulties are surely magnified in today’s credit-constrained market, preventing even more of the up-front funding that R&D requires.
One means of addressing the mismatch of private and social returns is the enforcement of intellectual property rights. For example, patents grant innovators temporary monopolies on their innovations, which they can use to charge monopoly prices and thereby possibly recoup their share of the full social value of their innovations. In the absence of such protections, creators who market new technologies will likely soon face competition from others who take advantage of the technologies’ public availability and produce their own versions. Although the original developer may have a head start in marketing her development and may be able to command a greater market share due to her status as originator, these market-based incentives are tenuous, ephemeral, and uncertain. For instance, it is equally likely in theory that an imitator will be able to produce the good or service more cheaply or at a higher quality. It is also likely that consumers will anticipate the entrance of such competitors and therefore refrain from consumption during the innovator’s initial marketing. Thus economic analysis supports the use of intellectual property rights to ensure that inventors will be adequately driven by the profit motive. Patents are certainly a key component of any pro-innovation policy scheme.
However, intellectual property rights are neither a sufficient nor always desirable response to the failures of the R&D market. To begin with, much of the value of a given R&D project may consist of knowledge that is, for good reason, outside the scope of the intellectual property rights regime. The Stern Review offers the example of “tacit knowledge,” which is vague and does not satisfy the requirements of patentability. Another concern is that due to the inherent uncertainty of legal regulation, patents and the like do not always preclude all of the competition that prevents innovators from reaping their full rewards. Additionally, the prospect of monopoly pricing may not be a sufficient incentive to encourage risky, large-scale basic research. Analogously, pharmaceutical companies are known not to develop treatments for diseases that affect a sufficiently small segment of the population. As for the undesirability of robust intellectual property rights protection in the R&D context, one downside is that it can hinder or even cripple progress by preventing firms from building on each other’s successes and learning from each other’s failures. The early stages of innovation are often characterized by a high degree of uncertainty due to the lack of a well-defined path to progress. When there are multiple R&D avenues worth exploring, it pays to have multiple firms collaborating. Industry-wide collaboration is also vital for achieving big breakthroughs in basic science, such as those necessary to commercialize hydrogen fuel cell automobiles, which a single company is ill-equipped to deliver. This cooperation is unlikely to materialize if individual firms are given the incentive to keep their efforts under wraps while hoping to free-ride on the work of others.
In light of these concerns, many economists advocate direct government subsidization of technological innovation, especially at the level of R&D. This funding can take several forms, such as government-performed research, government contracts, grants, tax breaks, technology prizes, and incentives for students to study science and engineering. Of course, the government and private organizations can tailor these options to meet their needs in a given situation. Economists also promote government efforts to remedy the excessive myopia and uncertainty with which private decisions about long-term investment in climate change mitigation are fraught. These programs take a variety of forms, including educational workshops and training programs for professionals, advertising, product labeling, and energy audits of manufacturing plants.
Failures in the Market for Deployment and Diffusion
Although economists more strongly and consistently back government support for R&D, many also call for government responses to imperfections in the markets for technology deployment and diffusion. Successful R&D does not guarantee that the resulting innovation will immediately be deployed; market forces also govern firms’ decisions about technological implementation.
Economists have identified that firms in an industry may face a collective action problem when deciding whether to adopt new technologies that exhibit “dynamic increasing returns.” This phenomenon exists when the value of a technology to one user depends on how many other users have adopted the technology; in other words, the more users there are, the better off they will be. There are three types of positive externalities that generate dynamic increasing returns: “learning-by-using,” “learning-by-doing,” and “network externalities.” As in the R&D context, these externalities may give rise to a collective action problem because each firm can partake of the public fruits produced by the first adopters of a new technology; in turn, each firm is disinclined to be at the vanguard of technological adoption, and the deployment of worthwhile technology is unproductively delayed. Learning-by-using refers to the fact that the initial users of an innovation generate valuable public information about it, such as its existence, characteristics, and performance. Learning-by-doing, the “supply-side counterpart,” refers to the fact that production costs fall as firms gain experience, which they cannot fully keep to themselves. For one, a product itself usually provides insight into its production. Lastly, network externalities exist when the value of an innovation increases as others adopt a compatible product. Telephone and computer networks are obvious examples.
In addition to these externalities, certain characteristics of the power generation sector further deter and postpone the deployment of technologies that are expensive and commercially unproven. The sector is subject to a high degree of regulation and tends to be quite risk averse. Second, technologies that do not easily fit into existing infrastructures such as power grids and gas stations are unlikely to enter the market until demand rises and/or costs fall enough for the industry to act en masse. For example, national grids are usually designed with central, as opposed to distributed, power plants in mind, and CCS will require the construction of new pipelines. Third, there are market distortions such as the aforementioned fossil fuel subsidies, which make it even harder for new technologies to compete. Finally, energy markets tend not to be particularly competitive. The oil-market is a well-known oligopoly, dominated by a multinational cartel, and electricity generation is a natural monopoly, in that a single firm can provide power at the lowest social cost due to economies of scale.
These problems can be mitigated or eliminated if there exists a niche market that is willing to pay a high price for early access to an innovation, as was the case with the first mobile phones. Niche markets can enable the initial producer of an advanced technology to profit despite subsequently facing competition from other firms that have the benefit of following in its footsteps and taking advantage of the externalities described above. Otherwise, originators must hope that they can eventually turn a profit – for instance by initially selling at a loss and then maintaining a dominant market share as costs fall and the market expands, perhaps by virtue of customer goodwill. Neither of these scenarios is likely in the energy market due to the homogenous nature of the end product (e.g., electricity), which makes it difficult for innovators to distinguish themselves. Although niche markets for carbon-free electricity exist, they are too small to make the costly implementation of advanced technology worthwhile. Consequently, established technologies can become locked-in, progressing only incrementally. At worst, the Stern Review notes that “energy generation technologies can fall into a ‘valley of death’, where despite a concept being shown to work and have long-term profit potential they fail to find a market.”
There are several desirable public policy responses that can be tailored to different problems in different markets. As in the R&D context, various types of subsidies and information programs can counteract market failures. The government can also use energy efficiency standards, such as emissions quotas, to force firms in an industry to implement environmentally friendly technologies.
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