Designing the Interface: Promoting Innovation

Abstract

We identify and characterize the policy interfaces between the layers of economic agents: the individual, the firm and the government level. Innovation is modeled with a production function which captures the physical tradeoffs among the inputs. The inputs include the usual capital, labor and materials, but also less common inputs: knowledge, infrastructure and motivation. Policies to promote (or inhibit!) innovation can be gleaned from the interfaces between the layers. The theoretical model draws from economic innovation literature in macro, micro, development and economic history. The proposed framework is useful in both descriptive and prescriptive ways.