The externality associated with technology spillovers
A)cannot be internalized by government.
B)is a negative externality.
C)can be internalized, potentially, through taxation of firms that are responsible for technology spillovers.
D)can be internalized, potentially, through patent protection.

Question

Quizplus · Accepted Answer

Technology spillovers refer to the positive externalities arising from the use of knowledge by one firm that spills over to benefit other firms in the industry. Patent protection is the most effective means of internalizing the positive externality associated with technology spillovers because firms are encouraged to engage in research and development activities to produce innovative products and processes. The patent system allows firms to receive monopolistic profits for a fixed period, which incentivizes them to innovate by internalizing the returns from innovation. Thus, patent protection leads to higher levels of innovation, which benefits society as a whole.

The Externality Associated with Technology Spillovers