Nesta Working Paper 13/13
Issued: November 2013
JEL Classification: O38
Keywords: Innovation policy, demand side policies, impact

Abstract

This paper is part of the Compendium of Evidence on the Effectiveness of Innovation Policy Intervention. It introduces the logic of demand-based innovation policy and it reviews in more detail instruments that are primarily geared towards supporting private demand. The report defines demand side innovation policy as all public action to induce innovation and/or speed up the diffusion of innovation through increasing the demand for innovation, defining new functional requirements for products and services and/or improving user involvement in innovation production (user-driven innovation). A typology of demand-side instruments is introduced. The paper demonstrates that there is strong theoretical reasoning and empirical evidence that demand is crucial for innovation activities. The evidence for the impact of policies that support the demand side is ambivalent, and different types of interventions have different kinds of effect, one prominent example being that command and control regulations appear to be more important for radical innovations than demand subsidies. The report shows that it is possible to transform markets to absorb more innovative products by using a mix of demand based policy. Demand side policy need a lot of policy intelligence to work properly, and they do not allow containing all economic effects on the supply side within a given country, as demand is often satisfied through international supply. The report finally finds a lack of evidence for a range of important interventions, such as those that make private demanders pro-actively ask for innovations.

Authors

Jakob Elder

The Nesta Working Paper Series is intended to make available early results of research undertaken or supported by Nesta and its partners in order to elicit comments and suggestions for revisions and to encourage discussion and further debate prior to publication (ISSN 2050-9820). The views expressed in this working paper are those of the author(s) and do not necessarily represent those of Nesta.