Technology Adoption, Bubbles, Network Externalities and Growth
44 Pages Posted: 1 Nov 2013 Last revised: 25 Feb 2014
Date Written: October 30, 2013
This paper studies the effect of innovation uncertainty on the concomitant time path of firm valuations, technology adoption and growth in a setting which incorporates positive network externalities. The resulting stock market bubble, induced by uncertainty and accelerated by the externality forces, may serve as a coordination mechanism which compensates for un-internalized externalities, thereby supporting higher post-bubble growth. Such a path may also overcome some of the potential chilling effects attributed to network formation. Under the proposed framework, uncertainty may improve long-term growth. Associating a productive role to certain bubbles may have far-reaching policy implications.
Keywords: Bubbles, Technology Adoption, Network Externalities, Growth, Innovation, Uncertainty
JEL Classification: O33, L1, O40, N1, E32, G12
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