The Nobel laureate Joseph Stiglitz (1998:197–210) contends that markets for information
and knowledge are highly imperfect. Because of external economies, that is,
cost reductions spilling over to other goods and producers (Chapter 5), firms whose
workers learn by using capital equipment cannot hold on to some of the benefits of
this learning. Knowledge is like a public good that is difficult for firms to appropriate,
resulting in an undersupply of knowledge and learning (ibid.). The social profitability
(profits adjusted for divergences between social and private benefits and costs) of
investment exceeds profitability to the firm. Thus, the investment rate under competitive
conditions may be lower than the one optimal for society. The state may wish
to subsidize investment to the point that its commercial profitability equals its social
profitability.