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The Optimal Lifetime Of Assets Under Uncertainty In The Rate Of Embodied Technical Change

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George C. Bitros

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Abstract

I investigate the effects of uncertainty regarding the rate of embodied technical change on the lifetime of assets using a model where: (1) technical change increases continuously the productivity of producers' durables, (2) potential competition induces firms to pass all benefits from productivity improvements to consumers, and (3) the mean and the variance are considered sufficient statistics to describe the probability distribution of technological change. I find that in general this type of uncertainty shortens the optimal lifetime of assets. However, the robustness of the results under alternative specifications of the probability distribution of technological change remains an open question. Copyright © 2008 The Author.

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Article provided by Blackwell Publishing in its journal Metroeconomica.

Volume (Year): 59 (2008)
Issue (Month): 2 (05)
Pages: 173-188
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Handle: RePEc:bla:metroe:v:59:y:2008:i:2:p:173-188

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  1. George Bitros, 2008. "Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent," The Review of Austrian Economics, Springer, vol. 21(4), pages 301-328, December. [Downloadable!] (restricted)
  2. Bitros, George/ C, 2009. "The Theorem of Proportionality in Mainstream Capital Theory: An Assessment of its Applicability," MPRA Paper 17821, University Library of Munich, Germany. [Downloadable!]
  3. Bitros, George, 2009. "The Theorem of Proportionality in Mainstream Capital Theory: An Assessment of its Conceptual Foundations," MPRA Paper 17436, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-11-22.

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