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Herd behaviour, strategic complementarities and technology adoption

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  • VERGARI, Cecilia

Abstract

In technology adoption, herd behaviour can lead to a suboptimal outcome. An example is given by Choi (1997): it is a model of technology choice under uncertainty where herding arises because of strategic complementarities and risk aversion. It causes a positive experimenting bias against the adoption of a more efficient (in terms of expected value) technology. We introduce in his model an additional element upon which firms base their technology decision: the economic environment. We investigate how this additional source of uncertainty can affect herding and so the efficiency of the technology choice. The result is that, under certain conditions, the experimenting bias decreases and in the limit it is possible to induce firms to experiment with the new technology thus improving social welfare.

Suggested Citation

  • VERGARI, Cecilia, 2004. "Herd behaviour, strategic complementarities and technology adoption," LIDAM Discussion Papers CORE 2004063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2004063
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    Cited by:

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    More about this item

    Keywords

    herding; information and network externalities; public information social learning; technology adoption;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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