The theory of induced innovation pioneered by William Fellner, Seyd Ahmand, Yujiro Hayamin and Vernon Ruttan, and Charles Kennedy states that rising prices of a factor of production would lead the direction of technical change to become more biased towards saving the factor that was becoming more expensive.
In my PhD dissertation I developed a method to measure biases of technical change with a multi-factor production function in which the biases can vary over time, and applied it to American agriculture from 1912 to 1968. Rising labour costs, with a considerable lag, led to a labor saving bias in American agriculture, which supported the theory.
Better micro-foundations for the theory showed that the rate and the direction of technical change is determined jointly by the biases in innovation possibilities, the prices or scale of output, and the expected discounted future factor costs. In an edited book on Induced Innovation we looked at several cases and the theory was further extended to look at technology transfer (with Robert E. Evenson), the impact of political distortions on the direction of technical Change (Alain de Janvry), and induced institutional change, (Vernon Ruttan)
Binswanger, Hans P., “Predicting Institutional Change: What Building Blocks does a Theory need. In Bruce M. Koppel, Induced Innovation Theory and International Agricultural Development, Baltimore, Johns Hopkins University Press, 1995, Chapter 7, pp. 103-136.
Binswanger, Hans P. and Vernon W. Ruttan. 1978. Induced Innovation: Technology, Institutions and Development. Baltimore, MD: Johns Hopkins University. 1978.
Binswanger Hans P., “Measuring the Impact of Economic Factors on the Direction of Technical Change.” In Arndt, Thomas M, Dana G. Dalrymple and Vertnon W. Ruttan, eds., Resource Allocation and Productivity in National and International Agricultural Research, 1977, Chapter 25, pp.526-550.
Duncan Ronald C. and Hans P. Binswanger, “Energy Sources: Substitutability and Biases in Australia, Australian Economic Papers, December 1976, and pp. 289-301.
Binswanger, Hans P., “A Microeconomic Approach to Induced Innovation." Economic Journal, 1974, Vol. 84, No. 336, (December): 940-958.
Binswanger, Hans P., "The Measurement of Technical Change Biases with Many Factors of Production." American Economic Review, 1974, Vol. 64, No. 6 (December): 964-976.
Binswanger, Hans P. The Measurement of Biased Efficiency Gains in U.S. and Japanese Agriculture to test the Induced Innovation Hypothesis, PhD dissertation, Department of Economics, North Carolina State University, Raleigh, NC, 1973