chapter  6
21 Pages

Economic Approaches to Understanding and Promoting Innovation: Joshua Gans


The economic analysis of innovation has a long tradition and principally deals with how the market and governmental systems provide incentives for economic agents to engage in innovative activity (Arrow 1962; Rosenberg 1982). As with other disciplines, what this means is that economic analysis specialises in understanding one aspect of the process by which innovations are created and diffused within society. As is well known, the creation of an idea is a complex phenomenon and relates to many factors that might include an entrepreneur or scientist’s perception of an economic need. However, it is how resources are attracted to the activity of innovation that is the focus of economics. For instance, how do creative people choose to spend their time and how are they supported by other resources (most notably capital) in their endeavours?