This was part of Aggregate Dynamics in Models with Heterogeneous Agents

Strategic Complementarity in a Dynamic Model of Technology Adoption

David Argente, Pennsylvania State University

Friday, October 29, 2021

Abstract: We study the network externalities that arise when introducing electronic payment methods into an economy, and how these evolve as the adoption of these payment methods increases in the population. We develop a theoretical model of technology adoption that features users' networks and their impact on the dynamics of adoption patterns through strategic complementarities. Our model allows for both stochastic network connections and arbitrary paths of the distribution of adopters. The adopter's decision problem and the aggregate adoption outcome in our model are cast as a Mean Field Game (MFG). We apply the model to studying SINPE, an electronic method of payment developed by the Central Bank of Costa Rica, and which diffused dramatically within our sample period. We use detailed individual-level data on the diffusion of electronic payment methods and user networks to quantify strategic complementarities through the lens of the model. (Joint work with Fernando Alvarez, Esteban Mendez-Chacon, and Diana Van Patten)