Supply chain design and adoption of indivisible technology

October 1, 2016 - Liang Lu, Thomas Reardon<reardon@msu.edu>, David Zilberman

Lu, L., Reardon, T., & Zilberman, D. (2016). Supply chain design and adoption of indivisible technology. American Journal of Agricultural Economics, 98(5), 1419-1431.

Abstract

We develop a framework for analyzing small farms’ adoption of indivisible technologies by using a threshold diffusion model. The article shows that different supply chains may emerge to enable the adoption of these technologies. When the gain from adoption is not affected by scale or ownership of the technology, independent technology dealers or larger farmers may buy the indivisible equipment that embodies the technology and rent it to farmers, or enable farmers to outsource the machine’s services by supplying custom services. The article derives equilibrium prices and quantities in the output and equipment rental or outsourcing markets. The prices and quantities are a function of the heterogeneity of farmers and the features of the technology. Introducing the new indivisible technology will benefit larger adopting farmers and consumers but may hurt non-adopters. We illustrate our conceptual findings.

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