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.
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Note that that model’s predictions differ markedly from those of the standard median voter model: While in the standard model, moderate voters abstain because they are indifferent between the two dominant parties, in the expressive voting model it’s the extremists who abstain, for they feel alienated.
Relatedly, one may argue that rent-seeking lobbyists may successfully persuade naïve policy-makers or naïve voters that certain nudges are ‘harmless’, which leads to the same result: excessive nudging (ibid.)
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Schnellenbach, J., Schubert, C. A note on the behavioral political economy of innovation policy. J Evol Econ 29, 1399–1414 (2019). https://doi.org/10.1007/s00191-019-00625-y
- Sunk cost fallacy
- Availability bias
- Loss aversion