The New Growth Theory and Coasean Economics: Institutions to Capture Externalities

The New Growth Theory and Coasean Economics: Institutions to Capture Externalities. — This paper presents the main theoretical arguments which lead many adherents of the New Growth Theory to the conclusion that externalities in research and development are important for economic growth and warrant government subsidies. In contrast, the authors point to private institutions like associations, company structures and industry clusters which can capture such externalities. An international comparison of private R&D investment and special features of institutions in Switzerland and Japan are in line with this hypothesis. Thus, the argument for R&D subsidies made by the New Growth Theory is considerably reduced.