Appendix A Appendix World Bank Group Response to Market <Title> and Goverment Failures When market failures exist, markets are not likely to provide innovation and entrepreneurship at an optimal level because the social benefits are likely to exceed the private benefits. If the private market were to provide the right level of innovation, there would be little justification for public sector involvement. If the public sector were involved, then it would displace private activity, wasting scarce public funds and effort that could be deployed elsewhere. To complete the case for public support, it must be shown that the benefits of public interventions will exceed the costs. If a public intervention is so costly or entails public sector failures such that the costs exceed the benefits, the intervention would not raise national welfare, even if the social benefit exceeded the private benefit. Fifty-six World Bank projects — about half of all innovation and entrepreneurship projects reviewed — explicitly identified correcting some type of market or government failure as the main justification for World Bank support (Figures A.1 and A.2). Projects typically address more than one failure, with 83 distinct market and government failures identified in the 56 projects. Bank interventions addressed four main categories of market or government failures: lack of supporting public services, incentive problems, information asymmetry, and poor business enabling environment (Table A.1). Of these four, lack of supporting public services and incentive problems were the most frequently identified failures that different types of Bank interventions were designed to solve. These market and government failures varied across sectors and regions (Tables A.2–A.4). International Finance Corporation (IFC) project justification for innovation projects that supported innovation and entrepreneurship is based on the need to address failures in the market, at the government or firm level (Appendix Table D.12). The majority of projects, 83 percent, identified a specific market failure or firm-level constraint. Six types of failures were identified in IFC projects, with credit market imperfections the most frequently cited failure. This type of market failure is caused by factors such as lack of access to long-term capital as well as underdeveloped or poorly functioning financial systems. It was also dominant across all regions and sectors.
An Independent Evaluation | Appendix A
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