A Big Push without Coordination Failure: Timing and Uncertainty in Structural Transformation

Abstract

This paper reexamines the Big Push mechanism from a dynamic perspective by emphasizing timing and uncertainty rather than coordination failure. While the traditional Big Push literature attributes delayed structural transformation to complementarities across firms or industries, we reformulate the Big Push as an optimal timing problem faced by a forward-looking firm under uncertainty. The firm earns a stable profit in an incumbent market and can irreversibly switch to a new market characterized by perfect competition by incurring a sunk cost. The profitability of the new market depends on a stochastic demand parameter, generating an option value of waiting. We derive a threshold-based switching rule and show that greater uncertainty or an increase in the number of firms delays entry by increasing the value of waiting, even when the expected profitability of the new market improves over time. As a result, prolonged inertia and abrupt structural change can arise without coordination failure. The analysis offers a new interpretation of development traps and highlights the importance of timing and irreversibility in understanding structural transformation.