Schematic model of technology evolution.

<p>Quantities in circles (<i>C</i>, <i>P</i>, <i>R</i>) are observable inputs and outputs of innovation processes, while knowledge <i>K</i> is not observable. (A.) At early stages of a technology, markets <i>C</i> are typically very small and public R&D investments <i>R</i> are essential for generating new knowledge <i>K</i> and resulting patents <i>P</i> and product improvements. This has been the case for solar, wind and other energy technologies in the last few decades. (B.) As markets materialize, investments in innovation are increasingly driven by market growth (curved arrow), until this mechanism takes over. Market growth may be driven by public policy. At some point the technology may enter a cycle of rapid innovation (it takes off) and public R&D investment is no longer a dominant driver. Public R&D investments in innovation and those driven by market expansion have effects that are multiplicative, with each providing a base multiplier for the other. Any public R&D investment is highly leveraged by market driven investments as technologies develop towards stage B, as is presently occurring with several energy technologies such as solar and wind.