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Abstract

Agriculture is often represented as a case study in perfect competition, with a large number of small price-taking producers choosing an optimal input mix from a simple production function to maximize profits. Entrepreneurship and innovation do not seem to enter into this story, and nor do institutions. But this characterization misrepresents the complexity and niche competition in agricultural markets and the opportunities for cooperation. Old models of innovation policy emphasized market failure and recommended more or less direct government support to fund R&D investment. Examples were public funding of agricultural science. But new approaches to economics of innovation emphasise the role of entrepreneurial or market (rather than technical) discovery, and the increasing use of private institutions to solve the innovation problem through pooling innovation resources in the ‘commons’. This shift from market failure to collective action models of the innovation problem, and from government solutions to governance solutions, represents a fundamental shift in modern economic thinking about how industries grow through entrepreneurship and innovation, and the role of government in this process.

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