A Thought About Innovation Policy

There are a number of innovation clusters in the United States: Silicon Valley, the Route 128 innovation complex, the Internet complex in northern Virginia, etc. I live in Maryland which aspires to have a globally important innovation cluster built around biotechnology industrial innovation.

We know that there are advantages in clustering to promote innovation, as financial and educational services can be colocated to serve the cluster, as there can be spill overs among innovating firms, and as the cluster can provide critical mass for creation of markets for manpower, intermediate goods and services, etc.

Regional governments compete to attract innovation clusters, including by offering subsidized facilities and tax breaks. They spend money on technology promotion agencies and on developing public services that they hope will be needed.

My question is whether the competition among local governments to attract innovation clusters is optimum for the nation. I can imagine it is, in that it promotes competition and in that it prevents errors that may occur when federal bureaucrats try to pick technological winners.

On the other hand, I can imagine that the competition may result in clusters not achieving critical mass, in excessive subsidies being offered by some regions, and in firms choosing suboptimal locations to take advantage of subsidies.

Have there been any studies of optimal national policies to encourage appropriate innovation clusters?