Is Necessity the Mother of Invention? The Induced Innovation Hypothesis

My office on the Saint Paul campus of the University of Minnesota, Twin Cities is in a building called Ruttan Hall. Our building, which until recently bore the awful name of Classroom Office building, was given a new name in 2010 to commemorate Vernon W. Ruttan‘s (1924-2008) contribution to agricultural and applied economics as well as to our department, of which he was head from 1965 to 1970.

VernRuttan
Vernon W. Ruttan.

I unfortunately never got a chance to meet Vern Ruttan, but I had heard of him long before I joined the department. Among other things, he became well known for his work on the induced innovation hypothesis. The induced innovation hypothesis goes something like this: When the price of a factor of production increases sharply relative to the price of other factors of production, making that factor more costly to use in production, ceteris paribus, society will innovate by developing technologies that economize on that factor of production–in other words, the change in the price of that factor has induced innovation.

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Seminar at the University of Guelph on February 27

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On Friday, February 27, I will be giving a talk in the department of Food, Agriculture, and Resource Economics at the University of Guelph.

The title of my talk is “Was Sandmo Right? Experimental Evidence on Producer Attitudes to Price Uncertainty,” and this will be an occasion for me to debut a research project I am currently conducting with my PhD student Yu Na Lee and my frequent coauthor David Just.

If you are in the Greater Toronto Area and have an interest in applied economics, feel free to come by.

Lagged Explanatory Variables and the Estimation of Causal Effects

…without careful arguments on substantive grounds, lagged explanatory variables should never be used for identification
purposes.

This is from a new working paper of mine, coauthored with Cornell’s Tom Pepinsky, an associate professor of government, and Taka Masaki, a PhD student in government, on “lag identification.” This is a very common strategy to avoid problems of endogeneity or reverse causality, especially in political science, although table 1 in our paper shows that this is not exactly uncommon in economics.

We expose the assumption that underlies this strategy, which we term “no dynamics among unobservables.” We also argue that this assumption is almost impossible to defend on substantive grounds, because it requires knowledge about the time series properties of a variable which is unobserved.

We are fairly certain that the germ of the idea for our paper was this post by Phil Arena.

(This post is being simultaneously published today on Tom’s blog.)