Reflections on the Literature

Abstract

This article considers the literature on how different policy instruments influence the pace and direction of technical change. The motivation for addressing this topic stems from current assessments of the costs of policies to reduce the emissions of pollutants thought to contribute to climate change. Three dimensions of the literature are discussed: empirical research on learning curves; tests of the effects of energy price movements on the direction of innovation; and lessons from the experience of military procurement in inducing new, general-purpose technologies. The conclusions of past research are found to be general. Experience with military procurement practices confirms that consistent commitments seem to be associated with dramatic technical changes. Incentives do contribute to directing innovative activity. However, the results of past research offer little specific guidance on instrument design. Thus, there is scope for new research with high payoffs.