In this paper I review the theories of induced technical and institutional change. I discuss the sources of the demand and supply of institutional innovation. The sources of institutional innovation are illustrated by changes in land tenure relations in Philippine agriculture, by the development of institutional design principles based on studies of small scale resource management systems and by the transition from command and control to market based systems of resource management in the United States. I introduce the concept of incentive compatible mechanism and institutional design. In a final section I elaborate a pattern model that maps the relationships among changes in resource endowments, cultural endowments, technology and institutions.