Knowledge properties and economic policy: A new look

This article explores the full range of effects of knowledge properties and explains how knowledge properties such as transient appropriability, non-exhaustibility, and indivisibility do not only have negative effects, but also positive ones. Knowledge externalities help reduce the cost of knowledge and imitation externalities reduce the revenue and profitability of innovations. Their effects need to be considered jointly in a single analytical framework. An analysis of their combined effects ques- tions the scope of application of the ‘Arrovian postulate’ according to which the limited appropri- ability of knowledge due to its uncontrolled dissemination reduces invention. This ignores spillovers of outside knowledge, which increases invention. These are the two opposing faces of the limited appropriability of knowledge. Policy implications suggest that along with public inter- ventions designed to support the supply of knowledge and to compensate for missing incentives, much attention should be paid to all interventions that favour the dissemination of knowledge and the knowledge connectivity of the system.