Public Policy and Dysfunctions of National Innovation Systems

The public economic (industrial) policy usually relates to the government interventions aimed at the processes of structural transformation of the economy and its development. In the paper, the term "public policy in the national innovation system" is used as the public sector actions seeking how to enhance driving forces of the system and eliminate the barriers of its functioning. The rationales, goals, and objectives for government interventions in the national innovation system (NIS) are not only alleviating market imperfections but as well the failures of the system. The existence of the NIS failures means that its actors do not perform one of the core functions of the system. These functions include generation, storage, distribution and commercial usage of knowledge. Market failures directly affecting the NIS performance are considered in conjunction with the dysfunctions of the system. In this paper, such a factor of NIS dysfunctions as low motivation of NIS actors is considered. The subject of detailed analysis is the policies designed to mitigate adverse effects of factors associated with the shaping of incentives for business activities in the NIS. The specificity of the development stage through which a country is passing is taken into account. Two stages of development are considered. They are the investment (catching-up) driven stage and one driven by frontier innovation. The main dimensions of these policies include finding and striking tradeoffs between actors' activity and its external effects (externalities); the compensation for innovation risks and compulsion actors to risk-taking behaviour; facilitating innovation motivation at different meso-levels of the system. The problems of risk compensation and compulsion are considered as interrelated, i.e. the duality of the public policy is taken into account. Eventually, the problem of structure factor is investigated. The problem is related to information asymmetry in innovation and different conditions of the policy regulation on heterogeneous structures of different levels of the NIS.