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CEP discussion paper

Technological Innovations Slumps and Booms

This paper documents the delayed adoption of a major technological innovation: the adoption of the diesel locomotive in the US railway industry. Contrary to other instances of major technological innovations, the delay in the adoption of the diesel locomotive was not associated with an initial slump in output. We provide a theoretical model which is consistent with both an increase and a decrease in output following the invention of a new technology. Within this model we identify the key factors that make a slump in output unlikely.

Leonardo Felli and Francois Ortalo-Magne

July 1998     Paper Number CEPDP0394