Richard Sullivan and Zhu Wang
This paper studies diffusion and impact of cost-saving technological innovations. Our theory characterizes the process through which such an innovation is adopted sequentially by large and small firms, and how the adoption affects firm size distribution. Applying the theory to an empirical study of Internet banking diffusion among banks across 50 U.S. states, we examine the technological, economic and institutional factors governing the process. The empirical findings allow us to disentangle the interrelationship between Internet banking adoption and change in average bank size, and explain the variation in diffusion rates across geographic regions.