The Induced Innovation Hypothesis and US Public Agricultural Research

Applicability of the induced innovation hypothesis-that a change in relative input prices induces innovation to economize use of the increasingly expensive input (Hicks 1932)-is examined for U.S. public agricultural research. A reduced-form test is developed using input prices from the agricultural production sector, expenditures from the public research sector aimed at developing new technology to save specific agricultural inputs, and variables to control for innovation marginal cost differences and nonhomotheticity. Unlike recent demand-side studies that soundly reject the induced innovation hypothesis for agriculture, support for the hypothesis is found for several input pairings through these tests of public agricultural research using state-level panel data.