Profits and Politics: Coordinating Technology Adoption in Agriculture

This paper examines the political economy of coordination in a simple two-sector model in which individuals’ choice of agricultural technology affects industrialization. We show that multiple equilibria exist such that the economy is either characterized by the use of a traditional agricultural technology and low industrialization or the use of a mechanized technology and high industrialization. Choice of the mechanized technology maximizes output but creates winners and losers. This, in turn, limits the possibility of Paretoimproving coordination by an elected policy-maker who seeks to both affect technology choice and redistribute income. Depending on the group identity of the policy-maker and coordination policy, either the mechanized technology is chosen but a group of citizens are made worse off or the use of the traditional agricultural technology persists.