Technology Adoption with Production Externalities

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The main goal of this thesis is to investigate the reasons why firms do often adopt inefficient technologies even when superior ones are widely available, and to assess their consequences. From a macroeconomic perspective it has been emphasized that differences in the adoption and diffusion rates of technology have a significant impact on economic growth and development, affecting output and productivity differentials among countries. The importance of these issues explains why the understanding of the determinants of technical change has attracted a great deal of attention by both theorists and applied economists. A firm's technology choice and its timing rests on the expected costs and benefits of adoption, which in turn are a function of a number of microeconomic and macroeconomic factors. Several such factors have been investigated in the literature, giving rise to patterns of technology adoption more or less successful when brought to the data. One single feature of technology adoption that is widely emphasized is the role of technology-induced spillovers. This dissertation, after surveying the major approaches to technology adoption found in the literature and stressing their drawbacks, studies the effects on firms' choices of technology-induced production externalities that are largely consistent with the empirical evidence and whose relevance has not been previously assessed. The thesis central claim is the existence of a causal link between the effects of firms' choices of a technology and wages. The choice of technology determines an increase in workers' productivity and consequently an improvement of their occupational alternatives, that can transfer on the wages a firm must pay in order to retain its employees. It is shown, first in an efficiency wage partial equilibrium framework and then in a simple general equilibrium setting, that the presence of production externalities of the sort described above can lead to inefficient technology adoption by firms, so that they may not have an incentive to upgrade to the technological frontier, remaining stuck with old and inefficient technologies. Finally, the possibility of technology misallocation is investigated from a normative point of view, characterizing Pareto-efficient allocations and discussing the role of government interventions, through non-linear (first best) subsidization and second best policy instruments, to overcome or mitigate market failures.


  • Efficiency Wages
  • Market Power
  • Production Externalities
  • Spillover
  • Technology Adoption

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