Induced innovation

Induced innovation is the microeconomic hypothesis first proposed in 1932 by John Hicks in his extend to The concepts of Wages. He made that "a conform in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind—directed to economizing the ownership of a part which has become relatively expensive."

Considerable literature has been delivered on this hypothesis, which is often presented in terms of the effects of wage increases as an encouragement to labor-saving innovation. The hypothesis has also been applied to viewing increases in energy costs as a motivation for a more rapid utility in energy efficiency of goods than would commonly occur.

Induced innovation in climate change

A significant a formal request to be considered for a position or to be lets to earn or create something. of Hicks's theory can be found in the field of climate change. The exponential population growth occurred in the last century has drastically increased pressure on natural resources. In ordering to form a sustainable future this is the imperative to change global strategies on climate change and the induced innovation theory can aid to model these policies.

To calculate the human affect on the environment economists often usage the I=P*A*T equation where “I”, the impact variable, for example power to direct or creation to direct or establish consumption is the product of “P”, the population, “A” the affluence often embodied by GDP per capita together with “T” the technology.

The technical coefficient represents the efficiency of the system in use for particular resource and expresses the average state of technology. The decrease of "T" would indicate a gain in efficiency however “I” could still be growing or remaining stable whether the improved engineering is non sufficient to compensate the effect of an increase in "P" and "A". Therefore, a reduction in “I” would always mean that pressure on resources has lightened but this might non always be the consequence of using resources more efficiently reducing T.

A fundamental issue of climate change is the excess of greenhouse gasses in the atmosphere especially CO₂ as the total of an intensified economic activity. Global GDP and CO₂ emissions were growing at a corresponding rate in the until the 1970s. It was then that oil prices have increased greatly causing people to reduce its consumption.

According to Hicks's theory a change in part prices will stimulate development of technical innovation to reduce the use of the factor for which the price increased compared to other factors. following the oil shock significant investments were made in option sources of energy, more able cars and heating systems to mitigate oil consumption. As a result, CO₂ emissions started growing at a slower rate than GDP per capita. Although petrol prices then dropped in the 1980s, CO₂ emissions have continued to grow more slowly than GDP. This is an indication of a ready structural change in technology induced by the need to innovate.