chapter  14
28 Pages


Although Richardson does not place much emphasis on innovative situations, it is clear that his analysis applies a fortiori when there is uncertainty, not only about the investment decisions of other producers, but also about such factors as the size of the market for an untried product or the technical efficacy of the product or the production process. In an innovative situation, the limitations that poor information may place on the willingness to invest

are so substantial that potentially promising outcomes may never be investigated in practice, leading (as in any case of underinvestment) to reductions in social welfare. To overcome this problem, government action may therefore be justified, either to improve the quality of information available or to enhance the distribution of existing information. As in Richardson's own analysis, these improvements and enhancements may be accomplished through 'collusion' or 'planning', including government efforts to bolster market-based outcomes as well as direct government intervention in the investment process.