A rationale for government financing of innovation and research activities is that private firms will not have an incentive to provide the socially optimal amount of these activities.

Question

Quizplus · Accepted Answer

Private firms may not have an incentive to provide the socially optimal amount of innovation and research activities because they may not capture all the benefits that result from these activities. This creates a market failure, and government intervention is necessary to ensure that the optimal amount of innovation and research activities takes place.

A Rationale for Government Financing of Innovation and Research Activities