Responding to Droughts: Drivers of Innovation in the Water Sector

El-Khattabi, A.R.; El-Khattabi, A.R.

Technological innovation has long been viewed as a key solution that will enable cities, businesses, and others to solve problems related to climate change. The literature on water innovation, however, raises the concern that innovative activity is perceived to be lagging in the water sector relative to activity in other environmental sectors (Ajami et al 2014; Wehn and Montalvo 2017). In response to these concerns, the EPA launched a “Water Technology Cluster Initivative” in 2011 to help support water-related technological innovation.

Little is known, however, about the drivers of technological innovation in the water sector and even less is known about how innovators’ incentives to create new technologies to solve the issue of water scarcity. This paper focuses specifically on the incidence of droughts, given their exogenous nature and their impacts on the availability of freshwater sources, to test how responsive technological innovation is to issues presented by scarcity. Specifically, I exploit both geographic and temporal variation in innovation patterns in the context of the United States, using a time series of US Metropolitan Statistical Areas (MSAs) from 1976 to 2016 proxying innovation using water related patent applications.

The policy implications of this research are significant to both environmental and economic policy. If incentives are present to induce innovators to produce technologies to solve water-scarcity when and where they are needed, then the current amount of technological innovation in the water sector may be inconsequential. If, on the other hand, inventions are not occurring where the incentive to create products related to the water scarcity is the highest, then this would then imply that critical economic infrastructure necessary for innovation to occur may be missing which would have adverse consequences for the provision of technological solutions in the long-run

Overall, the analysis conducted in this study finds no evidence that water-scarcity alone induces more innovation. Though the level of patenting activity in response to droughts for technologies related to both water conservation and water supply technologies is positive, the results are not statistically significant. On the other hand, I find evidence to suggest that MSAs with water technology clusters not only create more technologies in general but also response to the incidence of droughts. This finding suggests that critical infrastructure and support needed for innovation may be missing in places that would highly benefit from them.

Association for Public Policy Analysis & Management

Poster Paper: Responding to Droughts: Drivers of Innovation in the Water Sector