Economic Conditions for Innovation: Private vs. Public Sector

The Hicks induced innovation hypothesis states that a price increase of a production factor is a spur to invention. We propose an alternative hypothesis restating that a spur to invention require not only an increase of one factor but also a decrease of at least one other factor to offset the companies' cost. We illustrate the need for our alternative hypothesis in a historical example of the industrial revolution in the United Kingdom. Furthermore, we econometrically evaluate both hypotheses in...