In this paper we study the diffusion
of production technologies in a simple search environment. Diffusion
occurs via a decentralized market process, where individuals acquire technological
knowledge via learning on the job, and where meetings between workers and
employers are governed by a random matching process. We characterize the
decentralized equilibrium, study its properties and show that it is generally
inefficient. In particular, we show that inferior technologies survive
longer than socially desirable and, consequently, there exists an excess
supply of inferior technologies in equilibrium. We analyze the externalities
that result in the inefficient allocation of resources, and characterize
an optimal tax structure that fully implements the socially desirable outcome. |
