SPILL OVERS

Spill Overs

Spill overs as an explanation for firm and its implications on government policy

Introduction

Social economists and other economists have been demonstrating that the Research and development activities of firms usually generates a widespread of benefits which are enjoyed by the society and consumers at large, and as a result of which the overall economic value transferred to the society is often exceeded from the economic benefit that is as a result of their research efforts enjoyed by the innovating firms. This excess of the private rate of return compared over the social rate of return which is enjoyed by the innovating firms by the economists is described as the spill over effect or also as a positive externality, and these spill over's usually imply that the private firms will be investing less than what is socially desirable in research, and also with the result that some of the desirable projects of research will not be undertaken, while others will be taken under consideration later and undertaken more slowly or rather on a very small scale than what would be socially desirable (Coe & Helpman, 1993, Pp. 254-282).

These spill overs are known to flow through a variety of distinct channels. First off these spill over's usually occur because of the markets or market for process creates benefit for non innovating firms and consumers or an innovative product and is known as 'Market Spill over's. Secondly it occurs due to the knowledge which is created by one firm and is usually typically not contained within that firm, and therefore results in creating value in the end for other firms' customers or firms themselves and is known as 'knowledge spill over'. Thirdly it occurs because the profit of a set of interdependent or interrelated technologies maybe depending on the achievement of a mass of success which is critical, and each of the firm which pursues one or more of these interrelated technologies sort of create an economic benefit for the other firms and respectively their customers and this is known as the 'network spill overs' (Zilberman, 1999).

Purchasers of better or cheaper products, firms whose personal researches usually benefit from the observation of the failures and successes of other firms efforts for researches, and those competing firms that try to imitate a successful innovation all garner the benefits of the spill over's, and as these particular examples suggest, such kind of spill over's are developed by a unique combination of the entirely new knowledge which results from a research and development effort and also the commercialization of a somewhat new technology in terms of process or a product which in the marketplace is successfully implemented, and therefore to have a complete understanding related to the research and development phenomena of spill over, it requires an unusual combination of a technical or scientific and economic/business analysis (Coe & Helpman, 1993, Pp. 254-282).

Spill overs are a type of market failure. It can be described in terms that when there is an externality that exists, the prices ...