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. P...
| Main Author: | |
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| Format: | Working Paper |
| Language: | en_US |
| Published: |
2003
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| Subjects: | |
| Online Access: | http://hdl.handle.net/1721.1/1807 |
| _version_ | 1826203702405365760 |
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| 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 different as uncertainty increases. The
model implies that in booms, the firm accelerates adoptions of new technologies,
delaying them in recessions. Adverse effects 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 | 2024-09-23T12:41:41Z |
| format | Working Paper |
| id | mit-1721.1/1807 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T12:41:41Z |
| publishDate | 2003 |
| record_format | dspace |
| spelling | mit-1721.1/18072019-04-11T09:45:32Z ADJUSTMENT COSTS, LEARNING-BY-DOING, AND TECHNOLOGY ADOPTION UNDER UNCERTAINTY Pavlova, Anna Technological Change Vintage Capital Optimal Scrapping Learning-by-doing 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 different as uncertainty increases. The model implies that in booms, the firm accelerates adoptions of new technologies, delaying them in recessions. Adverse effects 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 2003-01-27T20:35:13Z 2003-01-27T20:35:13Z 2003-01-27T20:35:13Z Working Paper http://hdl.handle.net/1721.1/1807 en_US MIT Sloan School of Management Working Paper;4369-01 318111 bytes application/pdf application/pdf |
| spellingShingle | Technological Change Vintage Capital Optimal Scrapping Learning-by-doing 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 | Technological Change Vintage Capital Optimal Scrapping Learning-by-doing |
| url | http://hdl.handle.net/1721.1/1807 |
| work_keys_str_mv | AT pavlovaanna adjustmentcostslearningbydoingandtechnologyadoptionunderuncertainty |