Shocks and Technology Adoption: Evidence from Electronic Payment Systems

Abstract

We provide evidence on the importance of coordination frictions in technology adoption, using data from a large provider of electronic wallets during the Indian demonetization. Exploiting geographical variation in exposure to the demonetization, we show that adoption of the wallet increased persistently in response to the large but temporary cash contraction, consistent with the predictions of a technology adoption model with complementarities. Model estimates indicate that adoption would have been 45% lower without complementarities. Our results illustrate how large but temporary interventions can help overcome coordination frictions, though we caution that such interventions may also exacerbate initial differences in adoption.