Strategic Complementarities in a Dynamic Model of Technology Adoption: P2P Digital Payments

Fernando E. Alvarez; David Argente; Francesco Lippi; Esteban Méndez; Diana Van Patten

doi:10.3386/w31280

Strategic Complementarities in a Dynamic Model of Technology Adoption: P2P Digital Payments

Fernando E. Alvarez, David Argente, Francesco Lippi, Esteban Méndez & Diana Van Patten

Working Paper 31280

DOI 10.3386/w31280

Issue Date May 2023

This paper develops a dynamic model of technology adoption featuring strategic complementarities: the benefits of usage increase with the number of adopters. We study the diffusion of new means of payments, where such complementarities are pervasive. We show that complementarities give rise to multiple equilibria, suboptimal allocations, and study the planner’s problem. The model generates gradualism in adoption, as individuals optimally wait for others to adopt before doing so. We apply the theory to the adoption of SINPE, an electronic peer-to-peer (P2P) payment app developed by the Central Bank of Costa Rica. Transaction-level data on the use of SINPE and several administrative data sets on the network structure allow us to exploit plausibly exogenous variation and to document sizable complementarities. A calibrated version of the model shows that the optimal subsidy pushes the economy to universal adoption.

We thank Isaac Baley, Andres Blanco, Diego Comin, Nicolas Crouzet, Joe Hazell, Rishabh Kirpalani, John Leahy, Claudio Michelacci, Ben Moll, Guillermo Noguera, Ezra Oberfield, Franck Portier, Rob Shimer, Nancy Stokey, Daniel Xu, Yu Zhu, and seminar participants at EIEF, Oxford, Minnesota, Chicago Booth, NYU, Princeton, Dartmouth, Columbia, Richmond Fed, Philadelphia Fed, UC Berkeley, LSE, UCL, Duke- NCSU-UNC, Rochester, Toronto, Northwestern, IIES, Chicago Fed, UCSB LAEF, Central Bank of Costa Rica, Bank of Mexico, Fed Board, the Cowles Trade Summer Conference, the BSE Summer Forum, the Hydra conference, the Bank of Canada, the Bank of Portugal, the Rome Junior Conference (Pizzanomics), the SED Wisconsin, NBER SI, NBER EFG, and Warwick-CFM-Vienna Global Macro. This project received STEG grant No. 608. Lippi acknowledges financial support from the ERC grant: 101054421-DCS. The views expressed herein are those of the authors and do not necessarily represent the views of the Central Bank of Costa Rica (BCCR). All results have been reviewed by the BCCR to ensure that no confidential information is disclosed. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

Fernando E. Alvarez
I have visited, taught, or consulted for the following institutions, where I have received an honorarium and/or paid traveling/lodging expenses:

EIEF, Rome, Italy. As research visitor.

University Torcuato Di Tella, Buenos Aires, Argentina, as a visiting professor.

Federal Reserve Bank of Chicago, US. As consultant to the Research Department.

Federal Reserve Bank of Richmond, US. As consultant to the Research Department.

Federal Reserve Bank of Minneapolis, US. As consultant to the Research Department.

Federal Reserve Bank of Philadelphia, US. As consultant to the Research Department.

Banco Central de Chile, Santiago Chile. As a conference participant, and writer of a book chapter.

European Central Bank, Frankfurt, Germany. As Duisenberg Fellow, as regular research visitor to the MPR division, and as a PRISMA visitor.

Goldman Sachs Global Market Institute, US. As a fellow.

Gerzensee’s Swiss Program for Doctoral Students, Switzerland. As a visiting professor.

Toulouse School of Economics, Toulouse, France. As a research visitor.

Cowles Foundation, Yale, US. As a research visitor.

Morris and Morris LLC, and Weinstein, Kitchenoff and Asher LLC, as a consultant to and compute damages on litigation related for financial contracts, US.

Bank of International Settlement, Basel, Switzerland. As a Lamfalussy senior research fellow.
MARC RIS BibTeΧ
- online appendix and technical appendix

Strategic Complementarities in a Dynamic Model of Technology Adoption: P2P Digital Payments

Related

Topics

Programs

Conferences

More from NBER