For what reasons might it make sense for the government to adopt a "technology policy", and...

For what reasons might it make sense for the government to adopt a "technology policy", and subsidize investment in certain areas?

Expert Solution

Technology development and innovative practices have strong positive externalities in society. These activities require huge investment and involve risk of being failed. Private sector is less inclined to such activities due to following reasons:

Such projects are likely to fail or risk factor is huge.
Banks are reluctant to extend loans for such activities.
If such developments are not protected through the intellectual property rights, then these can be misused.

Thus, due to aforementioned reasons, private sector might not find positive incentive to make expenditure on development of technology and development. Hence, government seeks to subsidize such activities. Over the long run, when output rises due to technological development, government tends to earn larger revenue. Thus, due to public good oriented nature of innovation and technological development, government goes to subsidizing these activities.

Rahul Sunny answered 1 year ago

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