The second premise is that technological change arises in large part because of
intentional actions taken by people who respond to market incentives. Thus, the model is
one of endogenous rather than exogenous technological change. This does not mean that
everyone who contributes to technological change is motivated by market incentives. An
academic scientist who is supported by government grants may be totally insulated from
them. The premise here is that market incentives nonetheless play an essential role in the
process whereby new knowledge is translated into goods with practical value. Our initial
understanding of electromagnetism arose from research conducted in academic institutions,
but magnetic tape and home video cassette recorders resulted from attempts by private
firms to earn a profit.