Working Paper: NBER ID: w13500
Authors: Paul Beaudry; Patrick Francois
Abstract: The adoption and diffusion of technological knowledge is generally regarded as a key element in a country's economic success. However, as is the case with most types of information, the transfer of technological knowledge is likely to be subject to adverse selection problems. In this paper we examine whether asymmetric information regarding who knows how to run a new technology efficiently can explain a set of observations regarding within and cross-country patterns of technology diffusion. In particular, we show how the dynamics of adverse selection in the market for technological knowhow can explain (1) why inefficient technology use may take over a market even when better practice is available, (2) why widespread inefficient use may persist unless a critical mass of firms switch to best practice, (3) why efficient adoption of new technologies is more likely to occur where the existing technology is already productive, where wages are already relatively high, and where the new technology is not too great an advance over the old one, and (4) why the international mobility of knowledgeable individuals does not guarantee the diffusion of best practice technology across countries.
Keywords: technology diffusion; adverse selection; economic performance
JEL Codes: O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adverse Selection (D82) | Inefficient Technology Use (D24) |
| Critical Mass of Firms Adopting Best Practices (L25) | Efficient Technology Use Dominance (O33) |
| Existing Technologies Productive and Wages High (O49) | Likelihood of Efficient Technology Adoption (O33) |
| Mobility of Skilled Individuals (J61) | Diffusion of Best Practices (O36) |