Working Paper: NBER ID: w31280
Authors: Fernando E. Alvarez; David Argente; Francesco Lippi; Esteban Mendez; Diana Van Patten
Abstract: This paper develops a dynamic model of technology adoption featuring strategic complementarities: the benefits of usage increase with the number of adopters. We study the diffusion of new means of payments, where such complementarities are pervasive. We show that complementarities give rise to multiple equilibria, suboptimal allocations, and study the planner’s problem. The model generates gradualism in adoption, as individuals optimally wait for others to adopt before doing so. We apply the theory to the adoption of SINPE, an electronic peer-to-peer (P2P) payment app developed by the Central Bank of Costa Rica. Transaction-level data on the use of SINPE and several administrative data sets on the network structure allow us to exploit plausibly exogenous variation and to document sizable complementarities. A calibrated version of the model shows that the optimal subsidy pushes the economy to universal adoption.
Keywords: Technology Adoption; Digital Payments; Strategic Complementarities; Subsidies; Economic Efficiency
JEL Codes: E04; E05; O1; O2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strategic complementarities in technology adoption (O33) | multiple equilibria (D50) |
| number of existing adopters (D16) | benefits of adoption (J13) |
| individuals waiting for others to adopt (J13) | adoption rates (J13) |
| number of peers adopting SINPE (C92) | individuals' perception of benefits from adoption (O36) |
| number of adopters (D16) | usage intensity of SINPE (L97) |
| optimal subsidies (H21) | universal adoption (F53) |