Induced Innovation in the Public Sector: Evidence from Landfill Methane Emissions Regulation.

The concept of induced innovation suggests the ability for policy makers to design and implement economically efficient regulation, both limiting negative environmental impacts from corporate activity and providing firms opportunities to improve performance through innovation in regulatory response. While extant research has substantially addressed aspects of both induced innovation among regulated private sector firms and managerial innovation among public sector organizations, we know relatively little about the nature of innovation taken by public sector entities in response to environmental regulation. An improved understanding of induced innovation in the public sector is important because public organizations are increasingly subject to regulation, with implications for regulatory efficiency and local government viability. We address the problem by analyzing prevalence and determinants of induced innovation among both publicly and privately owned entities subject to regulation in a unique context: methane emissions from municipal solid waste landfills in the United States. We find that induced innovation is more prevalent among public than private organizations, whereas private organizations are more effective at implementing induced innovation projects. We also find unexpected effects of various institutional factors on innovation uptake. The study contributes to literatures on induced innovation and public sector innovation, provides insights to guide future research, and offers guidance for efficient regulatory design. [ABSTRACT FROM AUTHOR]