KNOWLEDGE EXTERNALITIES AS COMMONS FOR INNOVATION: A CRITICAL ANALYSIS OF PUBLIC EXPENDITURE ON EDUCATION

Abstract

Objective: This paper analyzes how knowledge externalities function as common resources that foster innovation. Theoretical framework: The existing studies often frame the problem of knowledge externalities as a problem of knowledge market failures and recommend public intervention, such as public expenditure on education which is a simple solution. However, the experience from OECD countries shows that there is an inherent trade-off between public and private expenditures at every level of the education system which indicates the commonality of these resources. Method: This paper uses a semi-systematic literature review and quantitative analysis of public and private expenditures on education and their impact on patents generated across OECD countries. Results and discussion: This article argues that: first, knowledge externalities are complex common resources that require collective action, facilitated by public policy to address associated social dilemmas. This means, the commonality of the knowledge externality is in fact that no one is excluded to benefit from knowledge externalities except those who lack capabilities, however, due to lack of funding, these resources can be depleted; secondly, Public expenditure on education must not only account for the positive externalities generated but also recognize education as a component of the complex commons. The complexity of these resources justify why government intervention is required; third and finally, knowledge externalities contribute to social learning society which is an imperative to innovation processes. Research implications: This recognition can foster peer production and a learning society, both of which are essential for driving innovation. Originality/value: This paper assesses and synthesizes the literature on knowledge externalities and their policy such as public expenditure on education in a way that enables to understand knowledge externalities as common resources that enable holistic social learning which boost innovation.