Wednesday, July 30, 2008

Facebook and Development Economics

I finally joined Facebook. In about 24 hours I have increased my friend total from 0 to 64. In part I joined Facebook, because I thought everyone I know is on it, including my grandfather.

In my development economics class I use facebook as an example of technology adoption and the impacts it can have on an economy. The value of joining facebook is related to the number of people who have already joined. But the value is not linear in that if 50% of my friends are on it, it's probably more than twice as valuable and likely I’ll join than if 25% were on.

There is a similar relationship with technology adoption. The value of adopting a technology will depend on how many other people have adopted it. This is particularly true if the technology is used for communication. But, it is also true for other technologies in agriculture, since the more people who use it the easier it is to buy the technology and get help fixing or maintaining it. This means that typically technologies will be adopted by a small portion of the population (say under 10%) then its harder to get the next 10-20%, but once a critical mass is reached then almost everyone adopts the technology.

This can be seen in the graph linked here, which shows the numbers of internet users and GDP.
You can see the number of users ramps up with only small increases in GDP per capita.

The difficult thing in development economics is how to get enough people to start using a technology so that the benefits of the network take effect.

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