Regulation as the Mother of Innovation: The Case of SO2 Control*

This paper explores the relationship between government actions and innovation in an environmental control technology—sulfur dioxide (SO2) control technologies for power plants—through the use of complementary research methods. Its findings include the importance of regulation and the anticipation of regulation in stimulating invention; the greater role of regulation, as opposed to public R&D expenditures, in inducing invention; the importance of regulatory stringency in determining technical pathways and stimulating collaboration; and the importance of regulatory‐driven technological diffusion in contributing to operating experience and post‐adoption innovation in cost and performance. A number of policy implications are drawn from this work.