HSUEH, KUANG-TAO; PHD

                         THE PENNSYLVANIA STATE UNIVERSITY, 1983

                         ECONOMICS, GENERAL (0501)
 

                         The purpose of this dissertation is to examine the effect of geographical space on the diffusion of
                         innovations. Two issues are studied here. On the one hand, we examine the behavior of a
                         profit-maximizing firm toward an innovation and interfirm differences in speed of response to an
                         innovation in a spatial context. On the other hand, we also examine the pattern of innovation diffusion in
                         a spatial economy. In the first part of the theoretical exploration it is argued that spatial factors will affect a
                         firm's attitude toward innovation adoption in the form of urban hierarchy and neighborhood effects.
                         Information cost is inversely related to both the location rank of a firm and the number of neighboring
                         firms which have adopted an innovation. The amount of information acquired by a firm to calculate the
                         expected profit from adoption of innovation is also inversely related to information cost. Thus the
                         probability to adopt an innovation by a firm is directly related to its location rank or the number of
                         neighboring firms which have adopted the innovation, ceteris paribus. Therefore interfirm differences in
                         speed of response to an innovation are due in part to the spatial factor through the effects of the firm's
                         location rank and the number of neighboring adopters, in addition to firm size, growth rate, general
                         profitability, profit trend, and the regulatory restraints on the adopter industry. Empirical estimation using
                         the OLS method tested the theoretical model with data on adoption of computers by the banking
                         industry and showed that firm size and urban rank effects are important factors in explaining interfirm
                         differences in speed of response to innovation. Less clear are the effects of the other factors. In the
                         second part of the theoretical exploration we find that the probability that at least one firm will innovate at a
                         place at any time increases monotonically with its size and follows a cumulative lognormal distribution.
                         The temporal pattern of innovation diffusion in a spatial economy can be approximated by a cumulative
                         normal distribution. Empirical estimation using the minimum normit chi-square method found the results
                         supportive of the theoretical model.
 

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