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Factor and cluster analysis are used to identify different methods that public sector agencies in Europe use to innovate, based on data from a 2010 survey of 3273 agencies. The analyses identify three types of innovative agencies: bottom-up, knowledge-scanning, and policy-dependent. The distribution of bottom-up agencies across European countries is positively correlated with average per capita incomes while the distribution of knowledge-scanning agencies is negatively correlated with income. In contrast, there is no consistent pattern by country in the distribution of policy-dependent agencies. Regression results that control for agency characteristics find that innovation methods are significantly correlated with the beneficial outcomes of innovation, with bottom-up and knowledge-scanning agencies out-performing policy-dependent agencies.
