Government regulation effects on the direction of innovation: A focus on performance standards

This study is concerned with the effects of government regulation of performance criteria on the direction of innovation. Data were gathered by structured interviews conducted by the author and associates on 107 innovations including successful and unsuccessful projects. The earlier findings on the influences of government regulations are augmented to this study, which offers further evidence that regulations can often stimulate innovation. Government performance regulations were cited as an influencing factor in 30 of the 68 successful innovations, and were cited as such a factor in only 9 of the 39 unsuccessful innovations. Furthermore, it was shown that the relationship between successful innovations and government regulation as a secondary factor affecting the innovation is positive and significant. In the paper, these results are compared with similar data from MIT, Cambridge, MA, and Northwestern University, Evanston, IL. In examining the sources of the regulations which affected the innovations under study, it was found that federal regulations were most influential. For most companies interviewed, the regulation was cited as both a stimulant to the direction of innovation and also an expense. This paper shows how regulations result in some innovations being encouraged (in fact necessitated), while others are thwarted. What is highlighted is that innovation is “bent” by regulation. The paper suggests a future study that examines the extent of the ripple effect — regulation effects upon Firm A (supplier), Firm B (supplier to A), and the effect on users.