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Competitive Diffusion

  • Jovanovic, Boyan
  • MacDonald, Glenn M.

The usual explanation for why the producers of a given product use different technologies involves "vintage-capital": A firm understands the frontier technology, but can still prefer an older, less efficient technology in which it has made specific physical and human capital investments. This paper develops an alternative. "information-barrier" hypothesis: Firms differ in the technologies they use because it is costly for them to overcome the informational barriers that separate them. The paper endogenizes both innovative and imitative effort. The industry life-cycle implications -- declining price and increasing output -- broadly agree with the Gort-Klepper data. Empirically, the paper focuses on the slow spread of Diesel locomotives, which can not be explained by the vintage-capital hypothesis alone. For instance, contrary to that hypothesis, railroads were buying new steam locomotives long after the Diesel first came into use -- exactly as the information-barrier hypothesis would imply.

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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 88-29.

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Length: 63 pages
Date of creation: 1988
Date of revision:
Handle: RePEc:cvs:starer:88-29
Contact details of provider: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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  1. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  3. Andolfatto, D. & MacDonald, G.M., 1995. "Endogeneous Technological Change, Growth, and Aggregate Functions," Working Papers 9504, University of Waterloo, Department of Economics.
  4. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September.
  6. Karl Shell, 2010. "A Model of Inventive Activity and Capital Accumulation," Levine's Working Paper Archive 1409, David K. Levine.
  7. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-65, December.
  8. Boyan Jovanovic & Rafael Rob, 1989. "The Growth and Diffusion of Knowledge," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 569-582.
  9. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December.
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