1992 Reports

Irreversible Choice of Uncertain Technologies with Network Externalities

Choi, Jay Pil

This paper explores the problem of sequential and irreversible technology choice in the presence of network externalities when the technologies stochastically evolve over time. Early potential users are shown to adopt an irreversible technology too early compared to the social optimum. The effect of increasing the uncertainty of the technologies on early potential user's decision is analyzed. We find that the sponsor of new emerging technology might choose too safe a research strategy. We also study the consequences of allowing side payments between generations of consumers, and demonstrate that ex post optimal policy can impair ex ante social welfare.