Energizing Change: How Policies and Experience Drive Research and Development

Given the significance of firm research and development (R&D) investment in supporting successful technological shifts, this paper asks whether policy incentives can drive firms to invest in R&D. We use data from the U.S. electric utilities industry, a setting in which most state governments have enacted renewable portfolio standards (RPSs) mandating renewable electricity. We examine whether these policies also motivate firms to increase investment in R&D. We find a positive relationship between RPSs and R&D investment but primarily among firms with previous experience generating renewable electricity. Notably, electric utility firms focus their investments on external R&D rather than on internal R&D projects. By highlighting how policy incentives for technological change and firm technological experience work together to stimulate R&D efforts, this research deepens our understanding of technological search.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2024.0196.