Subsidisation vs Information Provision as Instruments of Technology Policy

One of the aims of government policy has been to speed up the diffusion of new technologies. This aim has been pursued largely by policies aimed at improving information about the technology or by subsidising the purchase of new technology. In this paper we construct a simple diffusion model that integrates the two dominant themes in the literature, one stressing learning and the other stressing differences between potential adopters. We investigate the impact of learning and subsidy policies on the diffusion path and the welfare implications of these policies. It is argued that the market structure of the industry supplying the new technology is a key factor determining the impacts of the policies. It should therefore be considered when choosing whether government should intervene and if so, what instruments should be used.