Handbook of Research on Entrepreneurship Policy
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Handbook of Research on Entrepreneurship Policy

Edited by David B. Audretsch, Isabel Grilo and A. Roy Thurik

This unique Handbook provides a solid foundation for essential study in the nascent field of entrepreneurship policy research. This foundation is initially developed via the exploration of two significant propositions underpinning the nature of entrepreneurship policy research. The first is that entrepreneurship has emerged as a bona fide focus of public policy, particularly with respect to economic growth and employment creation. The second is that neither scholars nor policy makers are presently equipped to understand the public policy role for entrepreneurship.
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Chapter 2: The Simple Economics of Technology Entrepreneurship: Market Failure Reconsidered

Philip E. Auerswald


* Philip E. Auerswald Technological progress fuels economic growth. The Administration’s technology initiatives aim to promote the domestic development and diffusion of growth- and productivity-enhancing technologies. They seek to correct market failures that would otherwise generate too little investment in R&D. The goal of technology policy is not to substitute the government’s judgment for that of private industry in deciding which potential ‘winners’ to back. Rather the point is to correct [for] market failure. (1994 Economic Report of the President, p. 191)1 Introduction Among policy practitioners, few concepts are used at once as widely, or as imprecisely, as that of ‘market failure’. In contexts ranging from terrorism insurance to technological innovation, both advocates and opponents of government programs point to market failure as the basic test of a government role. The logic is presumably simple: a role for government exists if, but only if, a market failure exists. Policy discussions premised on the market failure test invariably are reduced to debates over the strength of evidence that markets are not competitive – and, therefore, a government role is warranted. A fundamental problem with this approach is that ‘market failure’ as properly defined is neither a necessary nor a sufficient condition for government action. The first reason is an obvious one: a perfectly competitive market achieves an efficient outcome but not necessarily an equitable one. Consequently, even in the absence of market failure, concerns over equity rather than efficiency may suggest an important and legitimate role...

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