Induced innovation model

Induced innovation model

1. Induced Innovation Model Vaibhav

2. Yujiro Hayami and Vernon W. Ruttan , “ Induced innovation in agricultural development .” Department of Economics, University of Minnesota, Center for Economic Research Discussion Paper No. 3, May 1971; and Vernon W. Ruttan and Yujiro Hayami , “ Toward a theory of induced institutional innovation .” Department of Economics, University of Minnesota, Center for Economic Research Discussion Paper No. 200, February, 1984 The Hayami-Ruttan thesis on agricultural innovation was developed at a time when the economics community was beginning to conceptualize the origins of technological and institutional changes as endogenous rather than exogenous to the economic system.

3. Induced Innovation The induced technology and institutional innovations in agriculture, as proposed by Hayami and Ruttan (1985), takes into account four interacting factors viz. resource endowments, cultural endowments, technology, and institutions, which influence the process of development. Hayami and Ruttan argue that technological innovations start with a change in relative factor scarcities, which are reflected in the relative prices of the factors. Agricultural sciences respond to factor scarcities by developing and making available new technologies or inputs that enable farmers to substitute abundant factors for scarce ones to their advantage . Changed relative prices will stimulate the search for new methods of production which will use more of the now cheaper factor and less of the more expensive one

4. For example , in labour-scarce situations the farmers tend to substitute machinery for human labour; and in the land-scarce situations land-saving technologies or inputs that enhance land productivity are substituted for land.

5. Theory of induced innovation Technical change in agriculture represents a response to changes in relative resource endowments and to growth in product demand Institutional change in agriculture is induced by changes in relative resource endowments and by technical change Land and labor are the two primary factors of production, and capital goods substitute for land or substitute for labor Land saving capital : biological, chemical, & water control investments (seeds, fertilizers, insecticides, irrigation) Labor saving capital : machinery & equipment, particularly tractors

6. factor substitution along a current production isoquant (I ) factor savings due to technical change along an innovation possibility curve (such as I* ) factor savings due to higher research budgets & scientific advances that shift I* to and I* 1 (closer to the origin)

7. Empirical Evidence of Induced Innovation labour scarce, United States, and land-scarce , Japan. Historically, agricultural sector in both the countries grew at similar rates but with wide differences in technologies and factor endowments. While the growth in the United States was driven by mechanical technology, growth in Japan stemmed from advances in biological technology.

8. Induced innovation (output to input price changes) In pure neoclassical form, theory of induced innovation assumes perfect markets for products, factors, and risks Thus, prices convey all relevant information and all agents face the same prices. Therefore, asset distribution does not affect efficient allocation of resources and there is no room for collective action.