Innovation intermediaries as a response to system failures: creating the right incentives

Policymakers worldwide increasingly rely on the funding of innovation intermediaries in order to remedy failures in their innovation systems, including firms’ lack of information about sources of external knowledge and opportunities, lack of adequate competences and skills, lack of productive connections and the lack of formal and informal institutions in the system. To induce intermediaries to satisfactorily address the system failures they are called to confront, policymakers often make their funding conditional on their performance. Building on a case study of publicly funded innovation intermediaries in Tuscany (Italy), we identify several challenges in setting up appropriate performance-based incentives for intermediaries. These involve (i) failure to clearly articulate policy objectives in terms of system failures; (ii) failure to measure the achievement of all policy objectives; and (iii) failure to clearly link performance indicators with policy objectives. Based on the lessons learned from this case, we derive some implications for policy design.