We know that innovation is a key driver of economic growth, but technical and social innovation has also spurred improvements in health, inequality, and social relations. Contemporary innovations in biology and artificial intelligence have tremendous potential to promote prosperity, improve health and education (including for the world’s most disadvantaged), and address global challenges such as pandemics and climate change.
At the same time, many are concerned that these innovations could further endanger the environment, increase inequality, and lead to political polarization. As economists, we can contribute to the design of institutions to better align private incentives for the pace and direction of innovation with human and environmental needs. We can also contribute directly to the innovation process by helping develop and rigorously test social innovations.
Closing the gaps
More than 5,000 innovations have been patented related to control of the European maize borer (a pest that eats grain), but only five for the maize stalk borer, a similar pest, which affects primarily production in sub-Saharan Africa. Economic analysis can help identify cases like this, in which social needs and commercial incentives to invest in innovation diverge substantially under current institutions. It can also inform the design of policies and institutions to address these gaps. Here, I will draw examples from the interlinked challenges of climate change, food insecurity, and agricultural productivity in low- and middle-income countries. As the examples of the maize borers illustrate, this is an area with particularly large gaps between social and commercial incentives for innovation.
Perhaps most obviously, climate mitigation innovations have large positive externalities (benefits to people other than the consumer of the innovation), meaning commercial incentives to invest in them are limited. For example, methane emissions from livestock make up nearly 15 percent of all anthropogenic greenhouse gas emissions, and innovative feed additives could potentially reduce these emissions by 98 percent. However, since farmers lack strong incentives to purchase such feed additives, potential feed innovators lack strong incentives to invest in R&D.
Other innovations are public goods and will be undersupplied by the market. For example, climate change disrupts weather patterns, and advances in AI enable more accurate weather forecasts. Farmers react to these forecasts. Improved monsoon forecasts could produce benefits exceeding $3 billion for farmers over five years in India alone, perhaps 100 times as much as they would cost. Moreover, information services create benefits beyond the buyer of the goods, since farmers who don’t subscribe can still access the information from subscribers.
Innovations in government service delivery, such as new technologies for digital agricultural extension, face a monopsony buyer problem, since the government is the most plausible buyer. Innovators may also be reluctant to invest in innovations with limited barriers to entry, such as climate-resilient crop varieties that farmers are able to replant in future seasons without repurchasing seeds.
