Testing the Induced Innovation Hypothesis: accounting for innovation creation and innovation implementation incentives

Abstract

Despite extensive empirical literature on the induced innovation hypothesis in US agriculture, this article reports only the second set of tests for this industry that account for supply as well as demand for new input-saving technology. Rather than assuming a specific innovation production function, we examine the relationship between research intensity and input prices in several different reduced-form specifications. Considering four inputs in the innovation-implementing industry—land, labor, fertilizer, and energy—we find non-trivial but limited support for the induced innovation hypothesis in public agricultural research. The most support for the hypothesis is found for research decisions aimed at saving fertilizer, followed in turn by energy, labor, and land.