Microeconomics › Section M · Positive externalities and public goods › Topic M.1
Investment in innovation as a positive externality
A new idea is a strange product: the inventor pays all the cost of creating it, then watches the benefit leak to everyone who copies, learns and builds on it. That leak is why markets systematically underinvest in innovation - and why societies that want new technology must design ways to pay for it.
In this topic
- The spillover problem
- What private incentive remains
- The copying problem
- The financial-capital framing
- Worked example: reading the two curves
- Spillovers in consumption: the flu shot
- Worked example: pricing a spillover fix
- Human capital: education as investment
- The public sector as founder
- Common mistakes to avoid
- Key takeaways
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