Incentives to Innovate

Darius N. Lakdawalla and Neeraj Sood

in The Oxford Handbook of the Economics of the Biopharmaceutical Industry

Published in print April 2012 | ISBN: 9780199742998
Published online September 2012 | | DOI:

Series: Oxford Handbooks

 Incentives to Innovate

More Like This

Show all results sharing these subjects:

  • Economics
  • Health, Education, and Welfare
  • Public Economics


Show Summary Details


Efficient innovation policy requires decoupling of the innovator's private rewards from consumer prices, and instead tying them to the marginal social value of the invention. This is not easy to achieve, but movement toward this goal can be effected through a mix of policy instruments. This article develops this thesis by drawing on the existing theoretical and empirical literature on innovation. It begins with the canonical positive model of innovative activity, along with its various extensions, weaknesses, and criticisms. It then turns to the empirical literature testing and quantifying the implications of this theory and its variants. Next, it moves to the normative implications of economic theory and describes how the empirical literature sheds light on the nature and degree of inefficiency in the discovery and dissemination of innovative goods. Finally, it characterizes various policy approaches to ameliorating these inefficiencies at their root.

Keywords: innovation; social value; canonical positive model; innovative activity; normative theory

Article.  9986 words. 

Subjects: Economics ; Health, Education, and Welfare ; Public Economics

Full text: subscription required

How to subscribe Recommend to my Librarian

Buy this work at Oxford University Press »

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.