While the area of innovation studies is extensive and rapidly expanding, analysis of innovation policy is much less developed. A view that policy applications can be inferred linearly as an afterthought of positive analysis parallels the logic of a linear innovation model,
whereby innovation is almost a straightforward outcome of either university research or company R&D. Taking as an example Israel's cluster of technology start‐ups and venture capital industry, the paper develops a theory of innovation policy as an endogenous variable.
A three‐phase model of innovation policy evolution is introduced, as well as directions for the adaptation of the model for middle‐income economies.