DP2146 Models of Technology Diffusion

Author(s): Paul A Geroski

Publication Date: May 1999

Keyword(s): Density Dependence , Epidemics , Information Cascades , Probit Models , Technology Diffusion

JEL(s): L00

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP2146.asp

The literature on new technology diffusion is vast, and it spills over many conventional disciplinary boundaries. This paper surveys this literature by focussing on alternative explanations of the dominant stylized fact in this are: namely, that the usage of new technologies over time typically follows an S-curve. The most commonly found model which is used to account for this model is the so-called epidemic model, which builds on the premise that what limits the speed of usage is the lack of information available about the new technology, how to use it and what it does. The leading alternate model is often called the probit model, which follows from the premise that different firms, with different goals and abilities, are likely to want to adopt the new technology at different times. In this model, diffusion occurs as firms of different types gradually adopt it. There are actually many ways to generate an S-curve, and the third class of models which we examine are models of density dependence popularized by population ecologists. In these models, the twin forces of legitimation and competition help to establish new technologies and then ultimately limit their take-up. Finally, we looks at models in which the initial choice between different variants of the new technology affect the subsequent diffusion speed of the chosen technology. Such models often rely on information cascades, which drive herd like adoption behaviour when a particular variant is finally selected.