WELFARE ASPECTS OF TECHNOLOGICAL ADOPTION WITH LEARNING

This paper considers the welfare implications of adoption of a new tec hnology when this technology is characterized by costs of adaptation a nd some 'localized learning' effects. A two-period model is developed to represent the 'adoption game' between firms in a duopolistic framew ork. Optimal social 'patterns' of adoption are compared with private p atterns emerging as equilibria of the game. It is shown that differenc es between the two patterns are due first to the shape of the demand f unction of the product sold on the duopolistic market, and secondly to strategic interaction effects between the adopting firms.