A Means—Variance Approach to the Theory of Intrafirm Diffusion

  • P. Stoneman
  • W. Ochoro


The core of microeconomic studies of technological change is the theory of diffusion—the theory of the determinants of the spread of a new technology over all its possible uses. Although numerous empirical studies have been undertaken over the years (see Kennedy and Thirlwall, 1972), the theory itself is still in its infancy. The central approach is attributed to Mansfield (1968) but his theory involves little more than a Taylor’s expansion of an assumed general form (the work of Davies (1978) represents something of an advance on this). However, one of the big problems associated with a new technology is its riskiness, and the existing literature makes little allowance for this in the modelling process. In this paper we face the problem squarely by the use of a means-variance approach. We realize that this approach has its problems, but as Green (1971) states, this model has the great advantage of simplicity. The primary objective is to see under what conditions the model will predict the central result of diffusion studies—the existence of an S-shaped diffusion curve, and what this implies about the determinants of the diffusion speed.


Variance Approach Technological Progress Learning Mechanism Time Path Diffusion Curve 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Arrow, K. J., ‘The Economic Implications of Learning by Doing’, Review of Economic Studies (1962), pp. 155–73.Google Scholar
  2. Chipman, J. S., ‘The Ordering of Portfolios in Terms of Mean and Variance’, Review of Economic Studies (1973) pp. 167–90.Google Scholar
  3. Chow, G. C., ‘Technological Change and the Demand for Computers’, American Economic Review (1967), pp. 1117–30.Google Scholar
  4. Davies, S., The Diffusion of Process Innovations (Cambridge: Cambridge University Press, 1979).Google Scholar
  5. Griliches, Z., ‘Hybrid Corn: An Exploration in the Economics of Technical Change’, Econometrica (1957), pp. 501–22.Google Scholar
  6. Green, H. A. J., Consumer Theory (Harmondsworth: Penguin, 1971).Google Scholar
  7. Harley, C. K., ‘On the Persistence of Old Techniques: the Case of North American Wooden Shipbuilding’, Journal of Economic History (1973), pp. 372–98.Google Scholar
  8. Kennedy, C. And Thirlwall, A., ‘Technical Progress A Survey’, Economic Journal (1972), pp. 1l–72.Google Scholar
  9. Mansfield, E., Industrial Research and Technological Innovation (New York: Norton, 1968).Google Scholar
  10. Romeo, A. A., ‘The Rate of Imitation of a Capital Embodied Process Innovation’, Economica (1977), pp. 63–9.Google Scholar
  11. Schumpeter, J. A., The Theory of Economic Development (Oxford: Oxford University Press, 1912).Google Scholar
  12. Theil, H., Economics and Information Theory (Amsterdam: North-Holland, 1967).Google Scholar
  13. Green, H. A. J., Consumer Theory. (Harmondsworth: Penguin, 1971).Google Scholar

Copyright information

© Tönu Puu and Sören Wibe 1980

Authors and Affiliations

  • P. Stoneman
    • 1
  • W. Ochoro
    • 2
  1. 1.University of WarwickUK
  2. 2.University of WarwickUK

Personalised recommendations