On technological expectations

Abstract

One of the most important unresolved issues in the theory of the firm and in the understanding of productivity growth is the rate at which new and improved technologies are adopted. I will argue that expectations concerning the future course of technological innovation are a significant and neglected component of these issues, inasmuch as they are an important determinant of entrepreneurial decisions with respect to the adoption of innovations. Recent work in various aspects of economic theory and measurement has pointed, once again, to the important role played by expectations of future change in influencing the behavior of economic agents. In a number of instances the expectation of future changes has led to quite different patterns of behavior than might have been expected to have taken place if it had been anticipated that no changes in level and/or trend would occur. What would appear to be aberrational or irrational behavior on the basis of such expectations of no changes is often fully explained once allowance is made for a different set of expectations about the future. In this paper I should like to draw a similar analogy for the study of the diffusion of technological innovations. The timing and nature of the adoption decision on the part of individual business firms is a key question with major implications for both the micro and macro levels of analysis.