Standardization as an Innovation Policy Instrument

This chapter explores the multifaceted role of standardization as a strategic tool in innovation policy. Beginning with an overview of formal and informal standards, it distinguishes standards from regulations and highlights their function as consensus-based coordination mechanisms that reduce technological diversity while enabling compatibility, scalability, and efficiency. Standards facilitate knowledge and technology transfer across all stages of the innovation process - from basic research to commercialization - by lowering transaction costs, creating network effects, and building trust. The chapter identifies several mechanisms by which standards address innovation-related market and system failures. These include enhancing knowledge diffusion, supporting high-risk innovations through risk reduction, overcoming coordination problems, and enabling transitions from outdated technologies. Standards are also vital in strengthening the performance of innovation systems by addressing institutional failures and improving actor interactions. Recent policy developments, such as the European Union’s integration of standardization into research and public procurement strategies, underscore its growing importance in innovation policies. Recently, standardization is also positioned within mission-oriented innovation policy, but also to safeguard technological sovereignty. However, challenges persist, including the need for timely revision of outdated standards and the inclusion of underrepresented stakeholders in standard-setting processes. Government support - through funding, regulatory alignment, and coordinated integration into research programs - is essential to unlocking the full innovation potential of standardization. The chapter concludes by framing standardization as a critical enabler of socio-technical transformation, offering practical policy measures to better align standard-setting with innovation-driven objectives in increasingly complex and globalized technological landscapes.