Heuristics and the microeconomics of innovation and development

ABSTRACT Researchers have long recognized multiple ways of innovating. However, the expositions fail to connect the microeconomics of production sets to the real-world institutional variety required to build technological capabilities and innovate. This paper argues for explicit attention to institutional variety in the heuristics used in innovation policy and practice, and analyses three such heuristics. While some types of social challenges can be addressed through formal science and industrial R&D, the most common proxies for innovation, most industrializing contexts will require changes in institutions and organizations to frame and solve local development problems. The analysis thus bridges the traditional microeconomics of production sets with innovation and development priorities.