A novel technology adoption in an OLG framework: examining the cross-generational effects of promotional policies

Abstract

We posit and analyse an inter-temporal decision-making problem associated with adopting a novel environmental-friendly (green) technology to replace a conventional one. Our analysis uses an overlapping generations model that incorporates credit market imperfections and adoptees’ bequest levels. In our model, technological returns are stochastic in nature and the adoptees are Bayesian learners. We solve for a stationary equilibrium for the mass of novel-technology adoptees and identify two effects that govern our results: (i) strategic substitutability effect and (ii) crowding out effect. Our results suggest that promotional measures to expedite the mass adoption of the novel technology need to be carefully implemented as they can have unforeseen inter-generational impacts arising from the interaction of the two effects. Our findings are especially relevant in the ongoing fight against climate change, particularly given the inter-generational nature of the costs and consequences involved in this fight to preserve the future of our planet.