Outsourcing and Technological Change

We present a dynamic model where the probability of outsourcing production is increasing in the firm’s expectation of technological change. As the pace of innovations in production technologies increases, the less time the firm has to amortize the sunk costs associated with purchasing and adopting new technologies to produce in-house. Therefore, purchasing from market suppliers, who can afford to use the latest technology, becomes relatively cheaper. The predictions of the model are tested using a panel dataset on Spanish firms for the time period 1990 through 2002. In order to address potential endogeneity problems, we use an exogenous proxy for technological change, namely the number of patents granted by the U.S. patent office classified by technological class. We map the technological classes to the Spanish industrial sectors in which the patents are used and provide causal evidence of the impact of expected technological change on the likelihood and extent of production outsourcing. No prior study has been able to provide such causal evidence. Our results are robust to the inclusion of detailed characteristics of the firms as well as firm fixed effects.outsourcing, technological change

Outsourcing and Technological Change

In this paper we argue that an important source of the recent increase in outsourcing is the computer and information technology revolution, characterized by increased rates of technological change. Our model shows that an increase in the pace of technological change increases outsourcing because it allows firms to use services based on leading edge technologies without incurring the sunk costs of adopting these new technologies. In addition, firms using more IT-intensive technologies face lower outsourcing costs of IT-based services generating a positive correlation between the IT level of the user and its outsourcing share of IT-based services. This implication is verified in the data.

Economic Growth and Technological Change

not availableresearch and development ;

Endogenous Acceleration of Technological Change

Our study shows that the technological development of a firm can be subject to an endogenous acceleration mechanism. The more advanced a firm is in using a particular set of technologies, the more likely will it adopt additional, related technologies. This acceleration mechanism implies that marginal differences in early adoption decisions lead to substantial differences in technology endowment later. This hypothesis is tested in a dataset that records the adoption times of various e-business technologies in a sample of 7,302 firms from 10 different industry sectors and 25 European countries. Estimation is carried out with a semi-parametric hazard rate model that controls for unobserved heterogeneity. The results show that the probability to adopt strictly increases with the number of previously adopted e-business technologies. Evidence for a growing digital divide among the companies in the sample is demonstrated for the period from 1994-2002. The endogenous acceleration mechanism is a possible source of early mover advantages, if technological uncertainty and technological improvements over time are not very large and if the price of the new technologies remains roughly constant.Technology adoption, Technological competition, Complementarity, Hazard rate models, IT

Endogenous Technological Change under Uncertainty

How does risk or uncertainty in the productivity of research affect the growth rate of the economy? To answer this question, a model of endogenous technological change is used where sustained growth stems from intentional investments in R&D from profit-maximizing firms. The uncertainty arises from the productivity of these investments in R&D. The main result of this analysis is that the relationship between long-run growth and uncertainty (on the productivity of knowledge creation) depends on two main factors - the returns to scale in knowledge creation (increasing or non-increasing) and the value of the elasticity of intertemporal substitution (higher or lower than some critical value). Based on empirical studies on the returns to scale in knowledge creation (”non-increasing”) and the value of the elasticity of intertemporal substitution (”higher than the critical value”), we expect a negative relationship between long-run growth and uncertainty regarding the productivity of knowledge creation.Long-run growth, Technological change, Uncertainty

Special Interests and Technological Change

We study an OLG economy where productivity growth comes from two alternative sources: process innovation and learning-by-doing. There is a trade-off between the two in so far as frequent technological updates reduce the scope for learning on existing technologies. A conflict is shown to arise between the young and the old, because the former favor innovation while the latter prefer learning. We model the interaction between overlapping generations and policy makers as a dynamic common agency problem, where competing generations invest a certain amount of resources to lobby either for the maintenance of the current technology or the adoption of a new one. By focusing on truthful Markov perfect equilibria, we characterize the political equilibrium and show its dependence on the underlying demographic, technological and preference parameters.Technological change, Technology option, Pressure goups, Dynamic common agency

Microeconomic policy and technological change

Economic policy ; Research and development ; Microeconomics ; Technology