Induced innovation in agriculture includes the impacts of technology on environmental quality. The induced innovation hypothesis maintains that technological change substitutes abundant factors for scarce ones (Hayami and Ruttan 1985). This hypothesis may be extended by arguing that agricultural technology change often affects the quality of factors of production such as groundwater or soil fertility. Once adopted, for example, irrigation technology may affect groundwater quality. Yet the market often fails to reflect the scarcity value of environmental quality characteristics.
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C. Ford Runge (1987) studied this question.
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