Innovative behavior in the schools is determined by market structure, in which the schools behave as a special type of public utility, and by bureaucratic incentives which govern the schools' motivation and ability to implement change. The market incentives for school districts are systematically different from those of a competitive firm, resulting in a different pattern of innovations. The main bureaucratic influences are bureaucratic safety, influence of external pressures, and peer elite approval. These factors lead to certain recommendations for educational R&D policy. Policies for effective innovation require better understanding of the existing structure of incentives, as well as efforts to modify that structure. Often it will be impossible to know what the objectives of educational policy are, and the practice of trying out new methods may, in the process, disclose what the objectives are. (Author)