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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

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.

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  • George C. Bitros, 2008. "The Optimal Lifetime Of Assets Under Uncertainty In The Rate Of Embodied Technical Change," Metroeconomica, Wiley Blackwell, vol. 59(2), pages 173-188, May.
    • Handle: RePEc:bla:metroe:v:59:y:2008:i:2:p:173-188
    DOI: 10.1111/j.1467-999X.2008.00298.x
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    References listed on IDEAS

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    1. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (II): Applications of the Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number fuss1978a.
    2. Morton I. Kamien & Nancy L. Schwartz, 1971. "Optimal Maintenance and Sale Age for a Machine Subject to Failure," Management Science, INFORMS, vol. 17(8), pages 495-504, April.
    3. Fuss, Melvyn & McFadden, Daniel (ed.), 1978. "Production Economics: A Dual Approach to Theory and Applications," Elsevier Monographs, Elsevier, edition 1, number 9780444850133.
    4. Georgios Bitros, 2005. "Some Novel Implications of Replacemnt and Scrapping," Macroeconomics 0504029, University Library of Munich, Germany.
    5. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
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    Cited by:

    1. Bitros, George C., 2016. "A theory of maintenance expenditures tested on automobile data from Greece," MPRA Paper 70820, University Library of Munich, Germany.
    2. George Bitros, 2010. "The theorem of proportionality in contemporary capital theory: An assessment of its conceptual foundations," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 23(4), pages 367-401, December.
    3. 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;Society for the Development of Austrian Economics, vol. 21(4), pages 301-328, December.
    4. Bitros, George C. & Nadiri, M. Ishaq, 2017. "Elasticities of Business Investment in the U.S. and their Policy Implications: A Disaggregate Approach to Modeling and Estimation," MPRA Paper 80091, University Library of Munich, Germany.
    5. 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.
    6. Dimitrios Koumparoulis, 2011. "The Proportionality Hypothesis in Capital Theory: an Assessment of the Literature," EuroEconomica, Danubius University of Galati, issue 27, pages 27-39, February.
    7. Bitros, George C. & Flytzanis, Elias, 2016. "On the Optimal Lifetime of Real Assets," MPRA Paper 70818, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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