Question

Why might private markets tend to provide too few incentives for the development of new technology?

Short answer

Private markets do not receive the full extent of social advantages, they offer minimal incentives for new technology development.

Step-by-step solution

Content Introduction

Because a corporation can make more money by inventing a way to create items more effectively or with desirable attributes, market competition may act as an incentive to develop modern technology. The same market competition, on the other hand, discourages businesses from underinvesting.

Content Explanation

If new inventions are copied, the original inventor is less likely to invest in additional research and development. Positive externalities are widespread in modern technology; that is, the effects of the developer's invention frequently benefit companies other than the creator. The societal benefit of an invention typically outweighs the private profit to the originator once the corporation accounts for these externalities. Inventors would be more motivated to explore new inventions if they were able to receive a larger share of the broader social benefits associated with their work.