IFin Seminar, Vera Chau, University of Geneva - "Network Effects in Technology Diffusion: Lessons from the Energy Sector"

Institute of Finance

Date: 5 October 2023 / 12:25 - 13:40

Speaker Vera Chau, University of Geneva 

Title - "Network Effects in Technology Diffusion: Lessons from the Energy Sector"

Date: October 5, 2023
Time: 12:25 - 13:40
Room: Red Room Executive Center (Main Building West Campus)



This paper develops a new empirical and theoretical approach to studying network effects in the diffusion, or internal firm adoption, of new technology. The empirical model devises a two step method which first categorizes geographies based on a spatial panel or network model. Then, it compares firm behavior across these categories when there is an exogenous change in information flow that affects all areas. The case study in the American oil & gas fracking revolution documents novel results that firm adoption of new technology is more sensitive to an increase in usable knowledge in highly networked areas. I then propose a theoretical framework for understanding diffusion as a dynamic transition process which can explain these empirical trends. I take a classic model of lumpy firm investments and incorporate a technology adjustment dimension. The model parameters are estimated using SMM. The structural model supports the reduced form result that productivity increases due to shared knowledge drives investment in new technology. The model sheds light on how increased competition as adoption rates increase interacts with the productivity gains. I show that adoption decisions are distinct from innovation decisions. Both models of firm behavior are important to the aggregate technology process at different times in the transition process.