The Creation of Knowledge Is a Public Good

question 44

Essay

The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking firms tend to free-ride on the knowledge created by others and, as a result, devote too few resources to the creation of knowledge. How do governments correct for this apparent market failure?

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Definitions:

Unrealised Gains

Profits that have been made but not yet realized through a transaction, such as an increase in the value of an investment that has not been sold.

Intragroup Sales

Transactions where goods or services are exchanged between entities within the same group.

Non-depreciable Assets

Assets that are not subject to depreciation over time, typically because they do not wear out or lose their value from use.

Deferred Tax Liability

A financial obligation to pay taxes in the future due to timing differences between the recognition of income and expenses for accounting and tax purposes.