Technological Diffusion with Social Learning

Abstract

This paper attributes the slow diffusion of innovations to an informational externality in the adoption process. The profitability of new technologies is uncertain but firing can learn progressively through observing the adoption experience of others. Given this prospect of social learning, every firm would prefer that other firms adopt before it does. In the absence of explicit coordination, the firms could end up in a sequence of waiting contests. This results in staggered adoptions even when all firms are ex ante identical. The pace of diffusion is determined endogenously and shown to depend on the characteristics of the innovation. Copyright 1995 by Blackwell Publishing Ltd.

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