Waters, James
(2015)
Four papers on the economics of technology.
PhD thesis, University of Nottingham.
Abstract
This dissertation consists of four chapters on the economics of technology. The chapters study different aspects of innovation generation and diffusion. In broad terms, chapter one looks at how innovation spreads by social contact, while chapter two looks at welfare consequences of diffusion. Chapter three examines how information sources affect diffusion, and chapter four looks at the relation of finance with innovation generation.
The first chapter empirically investigates the dynamics of the marginal propensity to pirate for computer software. We introduce a state space formulation that allows us to estimate error structures and parameter significance, in contrast to previous work. For data from 1987-92, we find a rising propensity to pirate as the number of existing pirate copies increases, and higher late piracy incidence than implied by static models. We strengthen prior results on the impact of piracy in the spreadsheet market, finding it to be the only significant internal influence on diffusion. However, when we allow for negative error correlation between legal and pirate acquisitions, we contradict earlier work by finding that, in the word processor market, piracy did not contribute to diffusion and only eroded legal sales.
The second chapter is a paper forthcoming in the European Journal of Operational Research. We present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate. The dynamic pricing problem faced by a legal seller is solved using a flexible numerical procedure with demand discretisation and sales tracking. Three offsetting pricing mechanisms occur: skimming, compressing price changes, and delaying product launch. A novel trade-off in piracy's effect on welfare is identified. We find that piracy quickens sales times and raises welfare in fixed size markets, and does the opposite in growing markets. In our model, consumers benefit from very high rates of piracy, legal sellers always dislike it, and pirate providers like moderate but not very high rates.
In the third chapter, we study the effect of different information sources on technology adoption between and within companies. Our model of economically optimising companies predicts that initial adoption will be primarily affected by information that reduces uncertainty about a technology’s performance, while intensification of intra-firm use will be mainly influenced by information that increases income from the technology. The theory is tested on data describing adoption of organic farming techniques by UK farmers. Our predictions are broadly supported by the empirical results. Information from land agents, farmers, and newspapers mainly influences initial adoption, from academia and government largely influences intensification, and from crop consultants, suppliers, and buyers influences both.
Financing innovation presents informational and control problems for the financier, and different solutions are used for funding of US companies and universities. In the fourth chapter, we examine how funding characteristics influenced the change in innovation during the 2007-8 financial crisis for both. We extend prior theories of external financing’s effect on company performance during crises, firstly to university performance, and secondly to show the influence of time variation in aggregate funding. Empirical results are consistent with our theory: external dependence and asset intangibility had a limited effect on company innovation on entering the crisis, but increased university innovation.
We do not describe here the limitations and gaps of the studies, and proposals for future work. Instead, they are addressed in the conclusions of each chapter.
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