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Abstract

Introduction and adoption of new technologies are an important component of development projects. Many technologies that could spur considerable increase in welfare, however, are often adopted at low rates even when donors and NGOs have invested heavily their effort in them. This paper develops a framework to analyze inefficiencies caused by fit-risk (potential users are not certain whether the technology will fit their needs, lifestyles, social feedback, or capabilities), and the role of marketing tools like demonstration in reducing fit-risk and enhancing efficiency of development projects. We find that, in the presence of fit-risk, there is always unrealized demand and resource waste. Donors who ignore fit-risk always overestimate the project value and over-subsidize the products they are promoting. We identify conditions under which introducing demonstration may help alleviating fit-risk and improve overall project values. The impact of eliminating fit-risk on the project uptake depends on the probability of fit.

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