Technology Policy
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Recent changes in administrative and policy responsibilities within the UK governmetn reflect a continuing concern over the rate of technological change in the UK economy and the appropriate role of government in fostering this change. At a CEPR lunchtime meeting on October 13, Paul Stoneman argued that the UK government's emphasis on research and development spending rather than on polices to encourage the diffusion of new technologies deserved closer examination.

The meeting at which Dr Stoneman spoke was held to mark the publication by Cambridge University Press of CEPR's latest book, Economic Policy and Technological Performance, edited by Partha Dasgupta and Paul Stoneman (see box). The volume is based on the proceedings of a CEPR conference on 'The Economics of Technology Policy', which brought together theoretical and empirical researchers with policy-makers and private sector practitioners from the UK, US and Continental Europe. A report of this conference may be found in Bulletin No. 17 . Paul Stoneman is Reader in Economics at the University of Warwick and a Research Fellow in the Centre's Applied Economic Theory and Econometrics programme.

Stoneman began by considering the arguments used to support government intervention in the process of technological change. Those used to justify government support for R&D are reasonably well known. In his talk Stoneman focused instead on the case for government intervention in the diffusion of new technology which had received less attention. Government support for such intervention requires first some understanding of the diffusion process and the factors which influence it. Stoneman noted that the diffusion of a technological advance across its potential market often takes several decades. Information and learning problems, profitability, and issues relating to expectations, standards and compatibility all contribute to the lengthy process of diffusion, Stoneman observed.

Despite recent re-orientations of DTI policy, Stoneman maintained new technology is adopted very slowly in Britain relative to countries like West Germany, although it is difficult to find data to support this assertion. But Stoneman also argued that late adopters of new technologies should not necessarily be considered irrational laggards: it may be completely rational to delay adoption of a new technology; conversely, however, there are reasons why a market economy may diffuse a technology too slowly. Potential adopters may not take up new technology at an optimal speed because of information problems. Individual firms may not know of even of the existence of a new technology much less, or its potential benefits. In these circumstances a government policy of information provision is relatively easy to justify. Such arguments underlay the majority of the support currently provided by the DTI for stimulating the use of technology.
If, however, the constraint on the use of technology is its profitability, then an information provision policy will be ineffective. Instead, a subsidy policy may be effective, but this raises the issue of why government should encourage use of an unprofitable technology. Stoneman argued that prices used in profitability calculations may not reflect social opportunity costs, and in such cases intervention could be beneficial. Such situations could arise when monopoly power enables suppliers to manipulate the market for a new technology; or when the costs of learning increase the private costs of adopting new technologies; or when expectations of continuing technological advance discourage investment in existing technological improvements.

Even if the arguments in favour of subsidies were correct Stoneman warned that the design of appropriate policies is no simple matter. He urged that the currently neglected policy of providing subsidies for the purchase of individual capital goods embodying new technologies should be reconsidered, even though monopoly power may counteract the effect of these policies (and also information provision policies). Stoneman concluded by noting that we do not know enough about the diffusion process to assess the relative importance of the factors which affect the spread of new technologies; the whole subject area requires further, more extensive research.