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Working paper

Innovations as Public Goods Provision with Negative Externalities: Role of Parliamentarism

Technological innovations are inherently problematic (risky, uncertain, possess public goods properties (enhances free-riding since it is easy to steal), but once they succeed, they create negative externalities for incumbents in the form of economic resources redistribution. Economic resources are convertible into political power. Therefore, economic redistribution might eventually result in political power redistribution. Those who fear to lose political power have incentives to defend status quo. Innovators will face collective action problems (who will be willing to innovate and risk to fight with incumbents) and commitment problems (who will compensate losers from innovations and why they should believe such promises). My answer is that market is not enough. It is political institutions that solve collective action and commitment problems. Some political institutions e.g. parliamentary government form will deal with political risks better than others e.g. presidential one.