Heterogeneity and the Dynamics of Technology Adoption

This paper analyzes the role of heterogeneity and forward-lookingexpectations in the diffusion of network technologies. Using a detaileddataset on the adoption of a new videoconferencing technology within afirm, we estimate a structural model of technology adoption andcommunications choice. We allow for heterogeneity in network benefitsand adoption costs across agents. We find that ignoring heterogeneity inthe interplay between adoption costs and network effects willunderpredict the size of the steady-state network size by almost 50percent. We develop a new 'simulated sequence estimator' to measure theextent to which agents seek diversity in their calling behavior, andcharacterize the patterns of communication as a function of geography,job function, and rank within the firm. We find that agents havesignificant welfare gains from having access to a diverse network, andthat a policy of strategically targeting the right subtype for initialadoption can lead to a faster-growing and larger network than a policyof uncoordinated or diffuse adoption.