Can Mergers and Acquisitions Internalize Positive Externalities in Funding Innovation?

Mark Liu

Technological innovation is a key driver of economic growth. However, innovations usually involve huge upfront costs, and the benefits associated with these innovations are spread across various sectors of society so that the value of these benefits are not easily appropriable by the innovating firm. The positive externalities of fundamental innovations cause individual firms to underinvest in them compared to the socially optimal levels, given the large costs and the limited appropriability of the benefits associated with the innovation.

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Published: January, 2019