This note is intended to give a brief overview of a graphic presentation of the Big Push model. We have an economy with a large number of sectors. Each sector is so small thatwhat happens in one sector has no impact on the economy as a whole. There are a total of L workers and N sectors, so there are L/N workers in each sector.
Each sector can either use a traditional or amodern technology. Using the traditional technology, one worker produces one unit of goods, so the sector would produce an amount equal to L/N. The modern sector requires F workers for administrativetasks, but the remaining workers produce more than one unit of goods per worker. This is depicted in the figures, where T is the production in the traditional sector an M the production in the modernsector. The way it is drawn, production is higher with modern than with traditional technology if we have L/N workers.
In the traditional sector, workers get paid one unit of goods for their workwhich they spend equally in all sectors. Hence if all workers are working in the traditional sector, demand towards all sectors is Q1=L/N. In the modern sector they get paid more. Each worker costs w,which we will look at more closely.
Consider first w1, which is a low wage. A firm facing demand Q1 will require L’ workers of it choose the modern technology. This will cost w1L’, and earnings willbe Q1. The way w1 was chosen, we see that w1L’Q1. Hence the firm will not choose to modernize if nobody else does. If all the others have modernized, though, the firm faces demand Q2. In that case, itwill choose to modernize as well. This is because it would now make a profit as w2 is chosen so that w2L/NQ2. This case is shown in Fig. 5.2 in the book.
The most interesting case is w2 though. Thenwe have a coordination problem as firms want to modernize if everybody else does, but they do not want to be the first to modernize. Hence we can get both a modern and a traditional equilibrium.