Induced innovation and technology trajectory: Evidence from smoking cessation products

Economic theory predicts that policies that discourage the consumption of a particular good will induce innovation in a socially desirable substitute. However, the literature on technology trajectories emphasizes the possibility of innovation waves associated with the identification of new dominant designs. We incorporate both of these possibilities in a model of the invention of new smoking cessation products, based on a new dataset of patents on such products from 1951 to 2004. We find that an increase in cigarette tax levels had no discernible impact on the industry-wide rate of invention in smoking cessation products. However, we do find evidence consistent with the emergence of dominant designs having substantial positive innovation effects. We estimate that the introduction of the nicotine gum and patch increased the overall rate of patenting activity in smoking cessation products by 60–75%, subject to a 10% rate of decay. Finally, we show that these products had greater effects on the patenting of corporations than individual inventors.

► No effect of cigarette tax increases on patents for smoking cessation products was found.
► The nicotine gum and patch served as “dominant designs” in the technology trajectory of smoking cessation products.
► The introduction of these dominant designs triggered increases in the rate of patenting, which then decayed over time.
► These dominant designs had larger effects on patenting by corporations compared to individual inventors.