ABSTRACT
The core issue addressed in this chapter was originally highlighted by Rosenberg in his 1974 critique of Schmookler’s 1966 argument that innovation was induced by demand. Nearly 40 years later, his words still seem prescient to me, as more and more policy advisors rush to claim that they can help ‘pull’, ‘procure’, ‘incentivise’ and strengthen demand for innovation. Rosenberg acknowledged that plenty of instances exist where technical understanding was improved in response to societal demand, but he also highlighted abundant evidence where weak scientific understanding constrained innovation despite substantial demand. Thus he suggests that:
It is unlikely that any amount of money devoted to inventive activity in 1800 could have produced modern, wide-spectrum antibiotics… The supply of certain classes of inventions is, at some times, completely inelastic - zero output at all levels of prices… On the other hand, the purely demand-oriented approach virtually assumes the problem [of innovation] away. The interesting economic situations surely lie in that vast intermediate region of possibilities where supply elasticities are greater than zero but less than infinity!
(Rosenberg 1974, p. 106; emphasis added.)