Technology Adoption: Herd Behavior, Savings Constraints, and Present-Biased Preferences, Slides of Microeconomics

Download Technology Adoption: Herd Behavior, Savings Constraints, and Present-Biased Preferences and more Slides Microeconomics in PDF only on Docsity! Outline More on technology adoption: Some pitfalls of learning: herd behavior Savings and other constraints on technology adoption How technology can a¤ect markets Other issues in technology Appropriate technology International technology transfer Olken () 11/08 2 / 27 Docsity.com Banerjee (1992) "A Simple Model of Herd Behavior" –we’ll look at the very simple version Suppose there are two options, A and B. In the paper, they are restaurants, could also be ways of using a technology, investments, or whatever. One option is better than the other. If you choose the good restaurant you get return y ; if bad restaurant you get return 0. Common priors over which is better. Suppose prior probability A is better is α. Each person receives a signal about which is better. Signal is correct with probability β. People move in sequence. You observe people’s choices, but not their private signal. Olken () 11/08 3 / 27 Docsity.com Credit and hyberbolic discounting Du‡o, Kremer and Robinson (2006), maize in Kenya Interviews with farmers suggested that one reason only 10%-17% of farmers in demonstration plots took up fertilizer themselves was "they didn’t have the money" Could normal credit constraints be the problem? Given that farmers have cash right after the last harvest, seems like normal credit constraints may not be the problem –may be that they are not good at saving money for harvest Olken () Docsity.com Present-biased preferences Traditional preferences u (ct ) = T ∑ k=t δktv (ck ) Present-biased preferences (also called "hyberbolic discounting", see Loewenstein/Prelec, Laibson, Rabin and others) capture they idea that individuals may discount the entire future more than they discount any future period relative to the previous one u (ct ) = v (ct ) + β T ∑ k=t+1 δktv (ck ) β < 1 implies ’present-bias’ Key implication: with β < 1, people prefer 100 dollars today to 110 in a month, but would prefer 110 in two months to 100 in one month. Such preferences would violate normal (exponential) discounting Olken () 11/08 7 / 27 Docsity.com Present-biased preferences These preferences are not time-consistent. Today I would like to start a saving plan tomorrow, but tomorrow I would like to put it o¤ until a day later. Two ways of thinking about these preferences: naiive and sophisticated. Sophisticated people are aware of these preferences; naiive people are not. Sophisticated people have a demand for commitment: today I would like to place restraints on my future self. Olken () 11/08 8 / 27 Docsity.com Empirical tests Randomize farmers into the following treatments: Farmer is visited by agent at harvest and o¤ered option to buy fertilizer then. Take it or leave it. Farmer is visited by agent before harvest, and asked when person should return to sell him fertilizer. When returns it is as above. Control Also examined subsidizing price of fertilizer by 50% Olken () 11/08 11 / 27 Docsity.com Results Program is taken up by 30%-40% of farmers and increases adoption by 10%-12% E¤ect of visiting early is comparable to 50% reduction in price –quite substantial e¤ect When farmers are given ex-ante choice of when to come back, many choose to have the person come back right after harvest: suggests some amount of sophistication is present. Total e¤ect is similar to main program: suggests not just impulse buy Bottom line: these savings / procrastination stories may be important, and magnitude is as large as a 50% reduction in price Olken () Docsity.com Other issues So far everything we’ve discussed has been about technology adoption. Switching gears.... Three more topics in brief. High tech and development: does it matter? Appropriate technology for developing countries International technology transfer 11/08 14 / 27 Docsity.com Technology adoption REGION ' [Phones added _ svey West Bema Best with phone REGION I ' J Phones added ————— ee REGION IIL ' Phones added —>] a a So with phone 6 with phone Docsity.com Results Olken () 11/08 18 / 27 Courtesy of MIT Press. Used with permission. Docsity.com Results Olken () 11/08 19 / 27 Courtesy of MIT Press. Used with permission. Docsity.com International technology adoption As discussed already, most technologies are developed in rich countries How do they get to poor countries? One view is that …rm linkages are important –e.g, foreign direct investment, joint ventures etc. Empirics: once again, most empirical work investigates this by looking at changes in …rm level productivity. Would be nice to see something more direct actually showing technology transfer. Olken () Docsity.com Aitken and Harisson (1999) Examine whether FDI changes the productivity of manufacturing …rms in Venezuela. Also examine spillovers: once technology is transferred to a particular …rm through FDI, what happens to other …rms Fixed e¤ects regression: yft = αf + αt + βFDIft + γXft + εft Include interactions: y…t = αf + αt + β1FDIft + β2FDIit + β3FDI…t  FDIit + γX…t + ε…t Thoughts on this regression? Why do foreign …rms invest in particular …rms? Technology spillovers vs. product market e¤ects? (i.e., if you lose business, your TFP may go down if you cannot easily adjust capital) Olken () 11/08 25 / 27 Docsity.com Aitken and Harisson (1999) Find positive own e¤ects, negative spillovers, but only for small …rms. Olken () Technology Lecture 1 11/08 26 / 27 Courtesy of the American Economic Association. Used with permission. Docsity.com