The Challenge of Innovation in Turbulent Times: A Report Submitted to the Global Agenda Council

Foray, Dominique; Phelps, Edmund S.

Our societies face Grand Challenges – all global and systemic – from health care to climate change and energy conservation, and from food and water security and to aging populations. The good news is that we may be able to meet these challenges. Intense innovation may be the way to manage all these potential crises. We know better than ever before how to innovate and this offers an element of hope - maybe the only one. On the other hand, investing in commercializing new technologies now requires substantial funds and time and entails a strong dimension of risk and uncertainty. The variance of distribution of expected returns from investing in the development of new processes or products is much greater than in the case of other kinds of business investments. Like any other economic agent, potential innovators respond to incentives; they have certain private marginal return expectations. And so in most cases, given this great uncertainty and risk, as well as the positive externalities associated with the process of the generation of new knowledge and information, further incentives need to be provided through “innovation policy”: Opening and integrating product markets, improving technology transfers, designing financial instruments better adapted to the funding needs of the different types of innovators, and creating strong universities are some of the most important policy directions. Private-sector investments will respond to the incentives created by public policies only to the extent that the policies are perceived to be credible – lasting and reasonably stable.


More About This Work

Academic Units
Center on Capitalism and Society
Center on Capitalism and Society, Columbia University
Center on Capitalism and Society Working Papers, 56
Published Here
September 22, 2017