Innovation systems: from fixing market failures to creating markets

Abstract

This paper presents a critique of the market failure theory, focusing on its limitationsfor explaining the creation of new markets. From a review of the literature on the subjectand several examples, I argue that the state has an essential role in fostering innovation.Therefore, the challenges for innovation in the future should be less focused on the worriesabout ‘picking winners’ and ‘crowding out’. Instead, we must open up the discussiontowards four key questions: 1) directions; 2) evaluation; 3) organisational change; 4) risksand rewards.