Strategic Complementarities in a Dynamic Model of Technology Adoption: P2P Digital Payments / Fernando E. Alvarez, David Argente, Francesco Lippi, Esteban Méndez, Diana Van Patten.

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Alvarez, Fernando E

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w31280.Publication details: Cambridge, Mass. National Bureau of Economic Research 2023.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper develops a dynamic model of technology adoption featuring strategic complementarities: the benefits of usage increase with the number of adopters. We study the diffusion of new means of payments, where such complementarities are pervasive. We show that complementarities give rise to multiple equilibria, suboptimal allocations, and study the planner's problem. The model generates gradualism in adoption, as individuals optimally wait for others to adopt before doing so. We apply the theory to the adoption of SINPE, an electronic peer-to-peer (P2P) payment app developed by the Central Bank of Costa Rica. Transaction-level data on the use of SINPE and several administrative data sets on the network structure allow us to exploit plausibly exogenous variation and to document sizable complementarities. A calibrated version of the model shows that the optimal subsidy pushes the economy to universal adoption.

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May 2023.

This paper develops a dynamic model of technology adoption featuring strategic complementarities: the benefits of usage increase with the number of adopters. We study the diffusion of new means of payments, where such complementarities are pervasive. We show that complementarities give rise to multiple equilibria, suboptimal allocations, and study the planner's problem. The model generates gradualism in adoption, as individuals optimally wait for others to adopt before doing so. We apply the theory to the adoption of SINPE, an electronic peer-to-peer (P2P) payment app developed by the Central Bank of Costa Rica. Transaction-level data on the use of SINPE and several administrative data sets on the network structure allow us to exploit plausibly exogenous variation and to document sizable complementarities. A calibrated version of the model shows that the optimal subsidy pushes the economy to universal adoption.