Market-based instruments and sustainable innovation:A systematic literature review and critique

Abstract

This paper describes a systematic literature review of how market-based instruments can influence the development of sustainable innovation. Our analysis of empirical papers published in selected peer-reviewed journals from 1992 to 2021 shows that contextual factors such as geography and industrial sector impact whether market-based instruments successfully stimulate firms to adopt sustainable innovation. Interestingly, while most of our selected papers on East Asia report positive effects of market-based instruments, about half of the papers on Europe report negative or non-significant effects. Moreover, we appear to uncover a link between the research method they use for analysis and the observed effectiveness of market-based instruments. We reflect on the limitations and bias in current methodological approaches and discuss explanations for our findings, implications for policymakers, and avenues for future research.