The Economics of Inefficient Technology Use

48 Pages Posted: 16 Oct 2007 Last revised: 23 May 2021

See all articles by Paul Beaudry

Paul Beaudry

University of British Columbia (UBC) - Vancouver School of Economics; National Bureau of Economic Research (NBER)

Patrick Francois

University of British Columbia (UBC) - Department of Economics

Date Written: October 2007

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.

Suggested Citation

Beaudry, Paul and Francois, Patrick, The Economics of Inefficient Technology Use (October 2007). NBER Working Paper No. w13500, Available at SSRN: https://ssrn.com/abstract=1021978

Paul Beaudry (Contact Author)

University of British Columbia (UBC) - Vancouver School of Economics ( email )

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National Bureau of Economic Research (NBER)

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Patrick Francois

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

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