Induced innovation is a macroeconomic hypothesis first proposed in 1932 by Dr. J. R. Hicks in his work The Theory of Wages. He proposed that "a change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind—directed to economizing the use of a factor which has become relatively expensive."

Considerable literature has been produced on this hypothesis, which is often presented in terms of the effects of wage increases as an encouragement to labor-saving innovation. The hypothesis has also been applied to viewing increases in energy costs as a motivation for a more rapid improvement in energy efficiency of goods than would normally occur.

References

• The Theory of Wages, J. R. Hicks, Macmillan, London, 1932.