Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty
We consider a variety of vintage capital models of a firm?s choice of technology under uncertainty in the presence of adjustment costs and technology-specific learning. Similar models have been studied in a deterministic setting. Part of our objective is to examine the robustness of the implicati...
| Main Author: | |
|---|---|
| Language: | en_US |
| Published: |
2002
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/1721.1/1574 |
| _version_ | 1826190489130369024 |
|---|---|
| author | Pavlova, Anna |
| author_facet | Pavlova, Anna |
| author_sort | Pavlova, Anna |
| collection | MIT |
| description | We consider a variety of vintage capital models of a firm?s choice of technology under uncertainty
in the presence of adjustment costs and technology-specific learning. Similar models have been
studied in a deterministic setting. Part of our objective is to examine the robustness of the
implications of the certainty models to uncertainty. We find that the answer crucially depends
on the specification of the costs of adoption of a new vintage of technology. In particular, if the
cost comes only in terms of accumulated technology-specific expertise (cf. Parente (1994)), we
demonstrate that the implications are robust for a variety of specifications of the firm?s production
function. However, once we develop a model in which each adoption requires a capital expenditure,
predictions become increasingly di?erent as uncertainty increases. The model implies
that in booms, the firm accelerates adoptions of new technologies, delaying them in recessions.
Adverse e?ects of a recession on the investment decisions are alleviated in part by the firm?s
expertise (or human capital). Compared to the deterministic benchmark, the firm increases the
pace of adoptions, making a smaller technological advance each time it upgrades its technology.
Overall, uncertainty negatively impacts growth and the firm value. |
| first_indexed | 2024-09-23T08:40:43Z |
| id | mit-1721.1/1574 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T08:40:43Z |
| publishDate | 2002 |
| record_format | dspace |
| spelling | mit-1721.1/15742019-04-09T19:10:23Z Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty Pavlova, Anna Learning-by-doing Vintage capital Technological change Optimal scrapping We consider a variety of vintage capital models of a firm?s choice of technology under uncertainty in the presence of adjustment costs and technology-specific learning. Similar models have been studied in a deterministic setting. Part of our objective is to examine the robustness of the implications of the certainty models to uncertainty. We find that the answer crucially depends on the specification of the costs of adoption of a new vintage of technology. In particular, if the cost comes only in terms of accumulated technology-specific expertise (cf. Parente (1994)), we demonstrate that the implications are robust for a variety of specifications of the firm?s production function. However, once we develop a model in which each adoption requires a capital expenditure, predictions become increasingly di?erent as uncertainty increases. The model implies that in booms, the firm accelerates adoptions of new technologies, delaying them in recessions. Adverse e?ects of a recession on the investment decisions are alleviated in part by the firm?s expertise (or human capital). Compared to the deterministic benchmark, the firm increases the pace of adoptions, making a smaller technological advance each time it upgrades its technology. Overall, uncertainty negatively impacts growth and the firm value. 2002-08-12T17:03:04Z 2002-08-12T17:03:04Z 2002-08-12T17:03:14Z http://hdl.handle.net/1721.1/1574 en_US MIT Sloan School of Management Working Paper;4369-01 318113 bytes application/pdf application/pdf |
| spellingShingle | Learning-by-doing Vintage capital Technological change Optimal scrapping Pavlova, Anna Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty |
| title | Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty |
| title_full | Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty |
| title_fullStr | Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty |
| title_full_unstemmed | Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty |
| title_short | Adjustment Costs, Learning-by-Doing, and Technology Adoption Under Uncertainty |
| title_sort | adjustment costs learning by doing and technology adoption under uncertainty |
| topic | Learning-by-doing Vintage capital Technological change Optimal scrapping |
| url | http://hdl.handle.net/1721.1/1574 |
| work_keys_str_mv | AT pavlovaanna adjustmentcostslearningbydoingandtechnologyadoptionunderuncertainty |