Theorem 2: Existence and Multiplicity of Balanced Growth Paths) Under the assumptions described as in
5. Conclusions
This paper develops a dynamic search-theoretic framework of technology adoption in which the interactions of endogenous matching and technology adoption give rises to the possibility of multiple equilibria (both global and local indeterminacy). It shows that labor market search and entry frictions can discourage adoption effort and lengthen technology diffusion. In the absence of endogenous job destruction, an increase in the rate of exogenous technology arrival or average growth spurs the worker’s contact rate, encourages adoption activity and raises the wages, though its influence on the overall wage dispersion is ambiguous due to the conflicting effects on the long-term unemployed and the newly employed. In the presence of global indeterminacy, a small autonomous technological improvement may create a large long- run effect, lifting an economy from a low-growth trap to a high-growth equilibrium. Moreover, by
incorporating endogenous job destruction, an increase in the rate of exogenous technology arrival may dampen growth in the short run but spur the economy in the longer run. Finally, the decentralized solution is
socially inefficient except for a set of parameters of measure zero. In particular, individuals may under- or over-invest in technology adoption, as they fail to account for free-rider, thick-matching and endogenous destruction effects.
There are several extensions of this work that may be of significant interest. For brevity, however, we only discuss two. One extension is to calibrate our model to obtain a technology diffusion curve. One can then study how search frictions may influence the shape of diffusion curves. Another is to explore more on the finding that the dynamic effect of technology adoption on the severity of creative destruction depends on the extent of the job matching market. In particular, one may empirically test this theoretical proposition using data from countries of various development stages with different degrees of job matching efficacy.
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