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American Economic Review: Vol. 100 No. 3 (June 2010)

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Technology Adoption with Exit in Imperfectly Informed Equity Markets

Article Citation

Tinn, Katrin. 2010. "Technology Adoption with Exit in Imperfectly Informed Equity Markets." American Economic Review, 100(3): 925-57.

DOI: 10.1257/aer.100.3.925

Abstract

This paper focuses on the importance of equity markets in facilitating the exit of entrepreneurs investing in technology. Entrepreneurs' willingness to invest and aggregate output is affected in two opposite ways. First, uncertainty about equity price or lack of market liquidity discourages technology adoption. This can explain slow technology adoption and limited participation by venture capitalists in underdeveloped equity markets. Second, fast adoption is a positive signal to imperfectly informed equity market participants. This provides a rational explanation for overpricing technology stocks and overinvestment in developed markets. Fast adoption is most probable at an intermediate quality of information. (JEL D82, E23, G12, G31, G32, O33)

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Tinn, Katrin (U Essex)

JEL Classifications

D82: Asymmetric and Private Information
E23: Macroeconomics: Production
G12: Asset Pricing; Trading volume; Bond Interest Rates
G31: Capital Budgeting; Fixed Investment and Inventory Studies
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
O33: Technological Change: Choices and Consequences; Diffusion Processes


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