Price of knowledge

Factors that determine the price of knowledge include:

* pre-existing knowledge in the economy (knowledge spillover decreases the cost of knowledge);
* transferability of the idea (some ideas are hard to transmit, eg old-age wisdom);
* knowledge of the knowledge (people may not know the idea is already known);

* natural intellegence;
* difficulty of the idea;
* complimentary knowledge (ideas can be self-perpetuating); and
* environmental factors.

The first three points show the impact of the knowledge spillover. The implication is that an investor in new knowledge with such spillovers wont receive a financial reward for the benefit of the spillover and there will be a consequent under-investment in such knowledge.

Sometimes there can be no knowledge spillover from previous knowledge as some knowledge has low transferability.

Demand for knowledge

There are various reasons why somebody might demand (ie be willing to pay for) knowledge:

* Financial reward;
* Fame;
* Curiosity; and
* Humanitarian reasons (e.g. cure for cancer).

When knowledge is pursued for fame, curiosity or humanitarian reasons then the knowledge spillover is not relevant.