Demand-pull, technology-push, and government-led incentives for non-incremental technical change

Rising expectations about future demand for new technologies increase the incentives for investments in innovation by enlarging payoffs to successful innovations. How well does this notion of “demand-pull” apply to non-incremental technological change when demand is largely attributable to actions by governments? In this case, inventors of the most important inventions did not respond positively to strong demand-pull policies; filing of highly cited patents declined precipitously just as demand for wind power created a multi-billion dollar market. Three explanations for this apparent inconsistency with the demand-pull hypothesis played a role: (1) the rapid convergence on a single dominant design limited the market opportunity for non-incremental technical improvements; (2) even though the policies implemented were stringent enough to stimulate demand, uncertainty in their longevity dampened the incentives for inventions that were likely to take several years to pay off; and (3) alternative explanations, such as declining R&D funding and weakening presidential engagement on energy, appear to have been important.