Firm Heterogeneity and the Gains from Technological Adoption: Theory and Measurement

• Departmental Seminar

Date and Location

Thursday, January 21, 2016, 11:00 AM - 12:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

This paper develops a tractable framework for estimating the productivity and welfare gains from the introduction of a general purpose technology that explicitly accounts for the effects of firm heterogeneity in adoption. I develop a theoretical model where monopolistically competitive firms are heterogeneous with respect to their productivity and choose to operate using one of several different technologies. The theoretical model is used to derive a statistic that summarizes the welfare gains from the introduction and adoption of a new technology. I consider two applications of the theoretical framework: steam power in the nineteenth century, and internet-enabled mobile devices (i.e. smartphones and tablets) in the twenty-first century. For steam power, I estimate the welfare statistic using nineteenth century firm-level data on steam power adoption in the Canadian manufacturing sector. I exploit exogenous variation in geography to estimate several structural parameters of the model. My results indicate that the use of steam power resulted in a 15.1 percent increase in firm-level productivity and a 3.0-5.2 percent increase in welfare. The second empirical application uses firm-level data on the adoption of mobile devices in the Canadian private sector over the period 2012-2013. I show that mobile device adoption is positively correlated with firm size and productivity, which is consistent with the predictions of the theoretical model. My current research is focused on estimating the welfare and productivity gains from mobile device adoption, and comparing these results with my estimates of the gains from steam power adoption.