Boston University School of Law
Why is it that adopting new technologies takes so long and costs so much? Clearly, firms do not know all the details necessary to implement a complex technology efficiently; learning these details requires extensive search. However, this explanation has a problem: even limited search may be so costly that newly discovered techniques will not be tried. We find that specialization solves this problem. If a complex process is divided into many small components, each searched in parallel, then discoveries are readily tested. Moreover, specialized search can perform surprisingly well even for processes of indefinite complexity. We measure the returns to search at 40 plant startups and find values consistent with specialization. This suggests that organizational factors may strongly influence how firms and nations adopt new technologies.
Discovery, Learning and Adoption of New Techniques: Choosing Specialization to Optimize Technical Progress
Available at: https://scholarship.law.bu.edu/faculty_scholarship/3330