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The Simple Microeconomics of Induced Innovation


  • Jason E. Christian

    (Department of Agricultural Economics, U.C. Davis)


A general model analyzes the innovator's decision to perform research and development directed towards process innovation. The innovator chooses expenditures in several research activities. The vector of research expenditures determines the input-output coefficients that describe the innovative technology. The innovator maximizes rents, which with non-drastic innovation equals total savings of variable costs, less research expenditures. If expenditures in different activities exhibit diminishing returns in the savings of all factors, then the optimization problem has a unique solution. Comparative static results are found for changes in factor prices and demand conditions. The paper generalizes Binswanger (1974) and Binswanger (1978) to derive results with $J$ factors of production and $M$ interdependent research activities.

Suggested Citation

  • Jason E. Christian, 1993. "The Simple Microeconomics of Induced Innovation," Industrial Organization 9312001, EconWPA.
  • Handle: RePEc:wpa:wuwpio:9312001
    Note: Keywords technology, induced innovation, theory, research and development.

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    References listed on IDEAS

    1. Grossman, Gene M & Helpman, Elhanan, 1989. "Product Development and International Trade," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1261-1283, December.
    2. Binswanger, Hans P, 1974. "A Microeconomic Approach to Induced Innovation," Economic Journal, Royal Economic Society, vol. 84(336), pages 940-958, December.
    3. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-266, April.
    4. Michael L. Katz & Carl Shapiro, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 567-589.
    5. Kennedy, Charles, 1973. "A Generalisation of the Theory of Induced Bias in Technical Progress," Economic Journal, Royal Economic Society, vol. 83(329), pages 48-57, March.
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    Cited by:

    1. Ruttan, Vernon W., 1996. "Sources Of Technical Change: Induced Innovation, Evolutionary Theory And Path Dependence," Bulletins 12974, University of Minnesota, Economic Development Center.

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    JEL classification:

    • L - Industrial Organization


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