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A Note on the Behavioral Political Economy of Innovation Policy

Jan Schnellenbach () and Christian Schubert ()

No 51, Working Papers from The German University in Cairo, Faculty of Management Technology

Abstract: We propose that policy-making in the realm of innovation policy can be fruitfully analyzed from the perspective of Behavioral Political Economy. Citizens, policy-makers and also bureaucrats are prone to biases that have been empirically identified in behavioral economic and psychological research. When applied to innovation policy, it can be shown that under certain conditions, policy-makers are willing to support riskier innovative projects and that this tendency is amplified by public sector incentives, such as soft budget constraints. The same holds for a tendency to support ongoing innovative projects even if their profitability becomes increasingly doubtful. Finally, we also highlight how special-interest policies aimed at distorting risk perceptions can slow down the innovation process.

Keywords: Biases; Heuristics; Sunk Cost Fallacy; Availability Bias; Overconfidence; Loss Aversion (search for similar items in EconPapers)
JEL-codes: D72 D78 H11 O38 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2019-02
New Economics Papers: this item is included in nep-cbe, nep-ino, nep-pol and nep-ppm
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http://mgt.guc.edu.eg/wpapers/051Schubert_2019.pdf First version, 2019 (application/pdf)

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