The market failure and the systemic failure rationales in technological innovation systems

In this paper we analyse the conceptual relationship between the market failure rationale and the systemic failure rationale as justifications for policy intervention within an innovation systems (IS) analytical framework. Current policy analyses in the IS literature are characterised by two contrasting theoretical positions regarding the way in which both rationales are conceptually interrelated. In one strand of the literature, the market failure rationale is considered as a valid although insufficient justification for policy intervention that therefore needs to be complemented by the arguments put forward by the systemic failure rationale. This perspective implicitly presents the systemic failure framework as a more general approach than the market failure perspective. On the other hand, a number of IS policy contributions explicitly reject the market failure approach and consider it a flawed argument for government intervention. In this theoretical view, the systemic failure approach is thus proposed as a more appropriate, alternative innovation policy rationale. Despite their relevance as the theoretical bases that currently underpin actual innovation policy design, an analysis of the robustness and conceptual coherence of these contrasting perspectives has not been provided so far. In this work, we set the analytical steps we deem required for this analysis, and investigate under which premises the relationship between the market failure and the system failure rationales proposed by these two policy perspectives is valid from a theoretical point of view.