Institution level, policy option and inclusive innovation in China

Inclusive innovation refers to innovation that target specifically at the needs of the low-income populations. New Institutional Economics provides us an analytical framework for inclusive innovation. This article analyzed the institutional levels and corporate behaviors in inclusive innovation from macro and micro perspectives. High transaction costs lead to failure in resource allocation mechanism in the inclusive innovation market. Government policy options should focus on reducing transaction costs and compensating market failure. This article analyzed the government policy from both the demand and the supply sides. Practices to promote inclusive innovation in China are also discussed in this paper. Based on the analysis and Chinese practices, the author also put up some suggestions on fiscal policies for inclusive innovation in the future.