NISTIR 6888
Technology Adoption Indicators Applied to the ATP Flow-Control Machining Project

Section 5. Summary and Conclusions

An economic case study of the potential adoption of the Flow-Control Machining (FCM) technology in lawnmower engines was used to develop and demonstrate the use of technology adoption indicators (TAIs). Extrude Hone, the developer of the FCM technology, initially identified lawnmower engines and aircraft engines as two potential uses of the FCM technology. The TAIs were developed to facilitate a systematic comparison of the likelihood for technology adoption in each industry.

5.1 Development and Interpretation of the TAIs from the SCP Model

The SCP framework guided the development of the TAIs. The framework asserts (and supports through extensive research) that the structure of a market (e.g., the number of buyers and sellers) influences the conduct of firms in that market, which ultimately determines the market price, quantity, and other performance attributes. In addition (and as it turns out, crucial to our assessment of the lawnmower industry), government regulations and more generally public policy can affect the structure or conduct of the market. Public policy and regulations belong in the standard set of TAIs, but require customized development from specific information about the industry of interest. We recommend that any study of a particular industry's likelihood to adopt should include an assessment of current government regulations affecting that specific industry.

The broadly defined-using 4-digit SIC and 6-digit NAICS industry classifications-TAIs of industry concentration (CR4, CR8, and HHI), as well as patents and RJVs, were used to compare the likelihood of technology adoption in two industries: the small engine and airplane engine industries. (The four- and eight-firm concentration ratios, along with the Herfindahl-Hirschman Index, were introduced in 2.1.)

For lawnmower manufacturers, almost all the measures (including the narrowly defined public policy information specific to the lawnmower industry) support the conclusion that the lawnmower industry is likely to be more receptive than the aircraft engine industry to new technology. (The broadly defined CR4 and CR8 are unable to support the selection of either industry.)

We extended the case study analysis based on the broadly defined TAIs to narrowly defined TAIs using data specific to the lawnmower industry. The CR4, CR8, and HHI were calculated based on private data available specifically for the lawnmower engine industry. The patent measure was calculated manually using searches of the USPTO database. Specific instances of regulations and the history of technology adoption in the lawnmower industry were also analyzed.

The narrowly defined lawnmower industry data show that, according to the CR4 and CR8, the lawnmower industry is too highly concentrated to adopt technology. The HHI, a more comprehensive measure of concentration, supports technology adoption by the lawnmower industry. The narrowly defined TAI data on patents per the HHI measure, public policy, and historical technology adoption show that the lawnmower industry should be receptive to new engine technology.  The EPA regulations are likely to provide a market pull.

5.2 Economic Analysis of the FCM Technology

We assessed the economic benefits from using the FCM technology by estimating the national economic impacts of using the conventional emissions-reducing technologies assumed by the EPA, or alternatively the FCM technology, and then comparing the two. Four lawnmower engine market segments, determined by engine displacement volume (Class I and Class II) and engine technology (SV and OHV) were identified.

In each market segment, we estimated the cost increase from using conventional technology to meet emissions requirements. Over the period of analysis, the cost of the FCM technology was somewhat lower in market segment A, Class I SV engines, and significantly lower in market segment C, Class II SV engines. We extended our analysis to national economic impacts for those two segments where FCM appeared cost competitive with the conventional technology.

We modeled the national economic effects of use in market segments A and C using the REMI macroeconomic model of the U.S. economy. For both the conventional technology and the FCM technology, the additional production costs cause lawnmower engine sales prices to rise, GDP and sales to decrease, employment in affected industries to decrease, and total personal income to decrease, but these effects are greater for the conventional technology.

In market segment A (Class I SV engines), the FCM technology has significantly lower initial fixed cost but slightly higher variable cost than the conventional alternative. The reductions in GDP, employment, and income initially are quite a bit smaller for the FCM technology compared to the conventional technology. Using the FCM technology rather than the conventional technology saves $261 million in GDP over the three years 2007 to 2009, and saves $244 million in personal income.

In market segment C (Class II SV engines), the FCM technology exhibits lower fixed and variable costs of production. The FCM technology is cost advantageous for market segment C and results in significant savings in GDP, employment, and personal income. Overall, the FCM technology saves 93% of GDP, employment, and personal income that would have been lost by using the conventional technology. Using the FCM technology rather than the conventional technology saves $982 million in GDP and $878 million in personal income over the five years 2003 to 2007. The advantage of the FCM technology in market segment C is obvious.

5.3 Application of TAIs

The TAIs are a useful framework for assessing whether a particular industry will adopt new technologies.⁽³⁵⁾   There are widespread differences across U.S. industries in size and distribution of firms, in patents, in research joint ventures, and in the use of new technologies. Increased understanding of the relationships between these variables will help ATP encourage research proposals from those sectors of the economy that are likely-or have the potential-to adopt new technology, and assess the potential economic impact of the proposed projects. There are four uses of the TAIs. First, they can be used to identify promising case studies for project evaluation. Second, the TAIs offer a consistent and effective methodology for conducting prospective case studies of economic benefits of ATP projects. Third, the TAIs can assist in evaluating business plans of ATP proposers. Fourth, the TAIs can be used to advise ATP awardees on which industries are more likely potential adopters of their technologies.

The TAI methodology provided valuable insight into industry characteristics affecting technology adoption, and, after the analysis of all TAI measures for the two industries, leads us to conclude that the lawnmower industry exhibits the stronger case for likely adoption of the FCM technology.  Analysis of the potential impact of the FCM technology using the REMI Policy Insight macroeconomic model suggests substantial benefits to the U.S. economy.

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35. We envision the TAI framework to be useful guidance in a methodological investigation of industry
characteristics affecting technology adoption. In this case study the public policy TAI, in the form of an EPA
regulation, turned out to be a decisive factor indicating the adoption of the FCM technology. Other case studies may
not have such a decisive factor.

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Date created: June 11, 2003
Last updated: August 3, 2005

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