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Economics of Knowledge

In: Business and Management

Submitted By himanshu1
Words 2270
Pages 10
Dr.Himanshu Raninga
Assistant Professor in Economics
Smt.J.J.Kundalia Arts & Commerce College, Rajkot-India

Economics Of Knowledge

Knowledge and information appear in economic models in two different contexts. The mostfundamental assumption of standard microeconomics is that the economic system is based on rational choices made by individual agents. Thus, how much and what kind of information agents have about the world in which they operate and how powerful their ability to process the information is crucial issues.
The other major perspective is one in which knowledge is regarded as an asset. Here, knowledge may appear both as an input (competence) and output (innovation) in the production process. Under certain circumstances, it can be privately owned and/or bought and sold in the market as a commodity. The economics of knowledge is to a high degree about specifying the conditions for
Knowledge to appear as “a normal commodity”, i.e. as something similar a producible and reproducible tangible product.
One reason for the interest in this issue is that it is crucial for defining the role of government inknowledge production. If knowledge is a public good that can be accessed by anyone, there is noincentive for rational private agents to invest in its production. If it is less costly to imitate than to produce new knowledge, the social rate of return would be higher than the private rate of return and, again, private agents would invest too little. Nelson’s (1959) and Arrow’s (1962b) classical contributions demonstrated that, in such situations, there is a basis for government policy either to subsidise or to take charge directly of the production of knowledge. Public funding of schools and universities, as well as of generic technologies, has been motivated by this kind of reasoning, which also brings to the fore the protection of knowledge, for instance…...

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