Abstract
Supply and demand conditions that affect technological change in four functional areas of local government service delivery are described and analyzed. A consistent picture of small, fragmented markets, ‘lumpy’ demand, or uncertain markets is found, with demand shaped by a heterogeneous body of local procurement traditions and practices, low municipal technical capabilities, and risk-averse behavior by city officials and engineering consultants. Industries involved share a number of characteristics that bode poorly for industrial investment in innovation: low profit margins and uncertain financial futures. Firms that have the resources to invest in R&D do not tend to focus exclusively on municipal markets. The findings suggest that public policies directed toward improving the municipal market for innovative products by strengthening the cities' technological infrastructure will be more effective than policies directed toward the supply side such as increased R&D support.
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