On our Knowledge of Markets for Knowledge—A Survey

Abstract

It is commonplace that advanced economies are knowledge (based) economies, meaning that knowledge is a major factor for the creation of economic benefits. The importance of knowledge for economic development was emphasized a long time ago by leading “Austrian” economists like Joseph Schumpeter and Friedrich Hayek. Both contemporaries of Wittgenstein claimed that the superiority of a capitalist economy as compared to its alternatives stems from its efficiency with respect to the creation, processing and utilization of knowledge. But knowledge, however defined, is quite different in many respects from most other goods. Markets are fairly efficient when it comes to the allocation of conventional goods, but various difficulties and paradoxes arise when they are supposed to trade knowledge and provide incentives for its creation. We shall consider some of them and discuss whether alternative institutional setups after all may not be as bad as some Austrian economists maintained.