Question

Different policies have important dynamic implications, particularly regarding the incentives for innovation. Which type of governmental approach will foster greater incentives to innovate in a beneficial way from the standpoint of decreased environmental and health risks?

Answer 1

Innovation promotion is a part of supply side policy. It mainly aims to create human capital. Human capital along with innovation promotion through research and development makes it effective.

These policies(supply side) are of two types- Market based and interventionist based.

In market based- labor market reforms, encouraging competition and creating a business friendly environment is involved. In Interventionist based policy focus is on creating human and physical capital. If this capital is supporting the policies implemented by govt and central bank then policy conflicts can be lowered and long run solid development can be achieved. However, it should be noted that supply side policies are long term ,need time and investments.

Govt. can promote better schools, colleges and can create schools of excellence . New start ups can also be given incentives. Incubation centers and new labs can be started. Fellowships can be given more.

Innovation through private firms should be respected with patent laws and govt. should focus on creating innovation friendly environment.