Endogenous Technology Adoption Research Articles

The macroeconomic effects of a carbon tax to meet the U.S. Paris agreement target: The role of firm creation and technology adoption

We analyze the labor market and aggregate effects of a carbon tax in a framework with pollution externalities and equilibrium unemployment. Our model incorporates labor force participation and two margins of adjustment influenced by carbon taxes: (1) firm creation and (2) green production-technology adoption. A carbon-tax policy that reduces carbon emissions by 35 percent—broadly consistent with Biden Administration’s new Paris Agreement commitment—can generate mild positive long-run effects on consumption and output, an expansion in the number and fraction of firms that use green technologies, and greater labor force participation, with marginal changes in the unemployment rate. In the short term, the adjustment to a higher carbon tax need not be accompanied by losses in output and consumption or a substantial increase in unemployment. Abstracting from green technology adoption implies that the same policy has substantial adverse short- and long-term effects on labor income, consumption, and output. Our findings highlight the importance of considering endogenous technology adoption in assessments of the labor market and aggregate effects of a carbon tax.

Competition among liquidity providers with access to high-frequency trading technology

We model endogenous technology adoption and competition among liquidity providers with access to High-Frequency Trading (HFT) technology. HFT technology provides speed and information advantages. Information advantages may restore excessively toxic markets. Speed advantages may reduce resource costs for liquidity provision. Both effects increase liquidity and welfare. However, informationally advantaged HFTs may impose a winner’s curse on traditional market makers, who in response reduce their participation. This increases resource costs and lowers the execution likelihood for market orders, thereby reducing liquidity and welfare. This result also holds when HFT technology dominates traditional technology in terms of costs and informational advantages.

Creative Destruction and Uncertainty

Abstract Uncertainty rises in recessions. But does uncertainty cause downturns or vice versa? This paper argues that counter-cyclical uncertainty fluctuations are a by-product of technology growth. In a firm dynamics model with endogenous technology adoption, faster technology growth widens the dispersion of firm-level productivity shocks, a benchmark uncertainty measure. Moreover, faster technology growth spurs a creative destruction process, generates a temporary downturn, and renders uncertainty counter-cyclical. Estimates from structural vector autoregressions (VARs) on U.S. data confirm the model’s predictions. On average, 1/4 of the cyclical variation in uncertainty is driven by technology shocks. This fraction rises to 2/3 around the “dot-com” bubble.

Contributions of shared autonomous vehicles to climate change mitigation

The climate change impacts of the anticipated growth in shared autonomous vehicles (SAVs) are highly uncertain due to competing mechanisms whose magnitudes are difficult to estimate. On the one hand, SAVs could reduce greenhouse gas emissions by driving more efficiently, avoiding traffic congestion, accelerating adoption of alternative fuel vehicles, and charging in alignment with renewable electricity generation. On the other hand, SAVs could induce more vehicle miles traveled (VMT) by lowering the time cost of travel and allowing non-drivers to travel more by car. In this study, we develop an energy system optimization model that integrates the electricity and transport sectors, computes endogenous technology adoption, and distinguishes SAVs from privately owned vehicles (POVs) to explore the contributions of SAVs to climate change mitigation. Our results show that widespread SAV adoption lowers costs and emissions, and that these desirable outcomes remain true even if SAVs induce double the VMT of the POVs they replace. SAVs dramatically accelerate the market penetration of electric vehicles. The environmental and economic benefits of this electrification trend are larger if electric SAV charging can be optimally aligned with renewable electricity generation. Especially in the short to medium term, SAV adoption can be a more impactful lever than a carbon tax for decarbonizing vehicle travel.

Technology Adoption in Emission Trading Programs with Market Power

In this paper we study the relationship between market power in emission permit markets and endogenous technology adoption. We find that the initial distribution of permits, in particular, the amount of permits initially given to the dominant firm, is crucial in determining over- or under-investment in relation to the benchmark model without market power. Specifically, if the dominant firm is initially endowed with more permits than the corresponding cost effective allocation, this results in under-investment by the dominant firm and over-investment by the competitive fringe, regardless of the specific amount of permits given to the latter firms. The results are reversed if the dominant firm is initially endowed with relatively few permits. Also, the presence of market power results in a divergence of both abatement and technology adoption levels with respect to the benchmark scenario of perfect competition, as long as technology adoption becomes more effective in reducing abatement costs.

Does Input-Trade Liberalization Affect Firms’ Foreign Technology Choice?

This paper studies the impact of input-trade liberalization on firms’ decision to upgrade foreign technology embodied in imported capital goods. Our empirical analysis is motivated by a simple theoretical framework of endogenous technology adoption, heterogeneous firms and imported inputs. The model predicts a positive effect of input tariff reductions on firms’ technology choice to source capital goods from abroad. This effect is heterogeneous across firms depending on their initial productivity level. Relying on India’s trade liberalization episode in the early 1990s, we demonstrate that the probability of importing capital goods is higher for firms producing in industries that have experienced greater cuts on tariffs on intermediate goods. Only those firms in the middle range of the initial productivity distribution have benefited from input-trade liberalization to upgrade their technology.

Endogenous Technology Adoption and Medical Costs.

Despite the claim that technology has been one of the most important drivers of healthcare spending growth over the past decades, technology variables are rarely introduced explicitly in cost equations. Furthermore, technology is often considered exogenous. Using 1996-2007 panel data on Swiss geographical areas, we assessed the impact of technology availability on per capita healthcare spending covered by basic health insurance whilst controlling for the endogeneity of health technology availability variables. Our results suggest that medical research, patent intensity and the density of employees working in the medical device industry are influential factors for the adoption of technology and can be used as instruments for technology availability variables in the cost equation. These results are similar to previous findings: CT and PET scanner adoption is associated with increased healthcare spending, whilst increased availability of percutaneous transluminal coronary angioplasty facilities is associated with reductions in per capita spending. However, our results suggest that the magnitude of these relationships is much greater in absolute value than that suggested by previous studies that did not control for the possible endogeneity of the availability of technologies. Copyright © 2016 John Wiley & Sons, Ltd.

Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence

We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We motivate, develop, and estimate a model with an endogenous TFP mechanism that allows for costly development and adoption of technologies. Our main finding is that a significant fraction of the post-Great Recession fall in productivity was an endogenous phenomenon, suggesting that demand factors played an important role in the postcrisis slowdown of capacity growth. More generally, we provide insight into why recoveries from financial crises may be so slow. (JEL E23, E24, E32, E44, G01)

Trade liberalization and credit constraints: Why opening up may fail to promote convergence

AbstractThis paper examines credit constraints as one channel held responsible for hampering economic convergence between countries. Specifically, we extend a Melitz and Ottaviano type trade model with variable mark‐ups to allow for endogenous technology adoption. We consider a framework with two countries that potentially differ with respect to credit market development. Firms have the option to adopt a more efficient technology by paying some fixed cost that is more costly to finance for financially constrained firms. We find that technology adoption increases in both countries after trade liberalization but more so in the financially more developed country: the productivity gap widens. Simulations show that the welfare gap widens too. Opening up without sufficient access to external funding thus fails to promote convergence.

Immigration, Endogenous Technology Adoption and Wages

We document that immigration to U.S. states has increased the mass of workers at the lower range of the skill distribution. We use this change in skill distribution of workers to analyze the effect of immigration on wages. Our model allows firms to endogenously respond to the immigration-induced changes in skill distribution in terms of their decisions (i) to enter different industries which require the use of different technologies; (ii) to choose across technologies that differ in their skill-intensity; and (iii) to employ workers of different skill levels. Allowing these mechanisms to interact, we find that, in line with much of the related empirical literature, immigration has a small effect on average real wages of low skilled workers for U.S. states. We further show that immigration increases the wage inequality between workers of different skill levels in all states, and that the effect of immigration on wages and wage inequality varies systematically with the volume of immigration across states.

Endogenous Technology Adoption and Medical Costs

Despite the claim that technology has been one of the most important drivers of healthcare spending growth over the past decades, technology variables are rarely introduced explicitly in cost equations. Furthermore, technology is often considered exogenous.Using 1996-2007 panel data on Swiss geographical areas, we assessed the impact of technology availability on per capita healthcare costs covered by basic health insurance while controlling for the endogeneity of health technology availability variables. Our results suggest that medical research, patent intensity and the density of employees working in the medical device industry are influential factors for the adoption of technology and can be used as instruments for technology availability variables in the cost equation. Our results are similar to previous findings: CT and PET scanner adoption is associated with increased healthcare costs while increased availability of PTCA facilities is associated with reductions in per capita spending. Nevertheless, our results suggest that the magnitude of these relationships is much greater in absolute value than that suggested by previous studies which did not control for the possible endogeneity of the availability of technologies.

Heterogeneous Firm Responses to Rising Teenage Wages

Abstract. Substantial youth minimum wage changes in New Zealand between 2000 and 2007 raised teenage average wages by 5–10 per cent relative to those for adults. We use Statistics New Zealand's Linked Employer–Employee Database (LEED) to examine whether firms' teenage labour demand responses to these changes are greater for firms with higher teenage‐employment share. We find evidence that high teen‐employers reduced their teen employment relative to other firms and had lower survival rates over the period. However, firms that entered the main teen‐employment industries had higher teen‐employment shares than continuing firms. The results are consistent with endogenous technology adoption in response to non‐marginal changes in relative wages.

On the integration of growth and business cycles

This paper discusses several approaches to generating the observed persistence in macro models and presents evidence in favor of models where endogenous technology adoption propagates transitory shocks into the medium term.

Was the Wealth of Nations Determined in 1000 B.C.?

We assemble a dataset on technology adoption in 1000 BC, 0 AD, and 1500 AD for the predecessors to today's nation states. We find that this very old history of technology adoption is surprisingly significant for today's national development outcomes. Our strong and robust results are for 1500 AD determining per capita income today. We find technological persistence across long epochs: from 1000 BC to 0 AD, from 0 AD to 1500 AD, and from 1500 AD to the present. Although the data allow only some suggestive tests of rival hypotheses to explain long - run technological persistence, we find the evidence to be most consistent with a model of endogenous technology adoption where the cost of adopting new technologies declines sufficiently with the current level of adoption. The evidence is less consistent with a dominant role for population as predicted by the semi - endogenous growth models or for country - level factors like culture, genes or institutions.

Endogenous Skill Bias in Technology Adoption: City-Level Evidence from the IT Revolution

This paper focuses on the bi-directional interaction between technology adoption and labor market conditions. We examine cross-city differences in PC adoption, relative wages, and changes in relative wages over the period 1980-2000 to evaluate whether the patterns conform to the predictions of a neoclassical model of endogenous technology adoption. Our approach melds the literature on the effect of the relative supply of skilled labor on technology adoption to the often distinct literature on how technological change influences the relative demand for skilled labor. Our results support the idea that differences in technology use across cities and its effects on wages reflect an equilibrium response to local factor supply conditions. The model and data suggest that cities initially endowed with relatively abundant and cheap skilled labor adopted PCs more aggressively than cities with relatively expensive skilled labor, causing returns to skill to increase most in cities that adopted PCs most intensively. Our findings indicate that neoclassical models of endogenous technology adoption can be very useful for understanding where technological change arises and how it affects markets.

Endogenous Technology Adoption, Government Policy and Tariffication

In this paper we integrate government policy into game-theoretic models of endogenous technology adoption to investigate the impact of alternate policy instruments on the adoption of productivity-improving technologies. We show that while ad-valorem taxes have a neutral impact on technology adoption, specific taxes tend to decrease the speed of technology diusion. As an application of this finding we demonstrate how, in an open-economy setting, tarication (i.e., the conversion of quotas to ad-valorem taris) can lead to faster technology adoption world-wide.

Endogenous Skill Bias in Technology Adoption: City-Level Evidence from the IT Revolution

This paper focuses on the bi-directional interaction between technology adoption and labor market conditions. We examine cross-city differences in PC adoption, relative wages, and changes in relative wages over the period 1980-2000 to evaluate whether the patterns conform to the predictions of a neoclassical model of endogenous technology adoption. Our approach melds the literature on the effect of the relative supply of skilled labor on technology adoption to the often distinct literature on how technological change influences the relative demand for skilled labor. Our results support the idea that differences in technology use across cities and its effects on wages reflect an equilibrium response to local factor supply conditions. The model and data suggest that cities initially endowed with relatively abundant and cheap skilled labor adopted PCs more aggressively than cities with relatively expensive skilled labor, causing returns to skill to increase most in cities that adopted PCs most intensively. Our findings indicate that neoclassical models of endogenous technology adoption can be very useful for understanding where technological change arises and how it affects markets.