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Network externalities and technology adoption: lessons from electronic payments

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  • Gautam Gowrisankaran
  • Joanna Stavins

Abstract

We seek to determine the presence and causes of network externalities for the automated clearinghouse (ACH) electronic payments system, using a monthly panel data set on individual bank adoption of ACH. We construct a model of ACH usage that shows how to separately identify network externalities from technological advancement and peer-group effects. We find significant evidence of network effects and find evidence that these network effects are not internalized. Moreover, a large part of these network effects is due to informational problems. Sunk costs of adoption appear to be low.

Suggested Citation

  • Gautam Gowrisankaran & Joanna Stavins, 1999. "Network externalities and technology adoption: lessons from electronic payments," Working Papers 99-5, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:99-5
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    More about this item

    Keywords

    Clearinghouses (Banking); Electronic funds transfers; Technology;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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