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Abstract

We use two-stage optimal control techniques to solve some adoption problems under embodied technical change. We first solve a benchmark problem without learning behavior. At the date of switching, the consumption level is shown to drop, as the relative price of capital goes down (obsolescence). In such a case, the economy sticks to the initial technology, or immediately switches to a new technology with a higher level of embodiment, depending on how the obsolescence costs compare to the induced growth advantage. In a second step, we introduce learning. The learning curve involves fixed costs and incentives to wait as well. Adoption is shown to depend on the growth advantage of switching net of obsolescence and learning fixed costs. The economy will switch if and only if this indicator is positive. If it is big enough to compensate the option of waiting, then the economy switches immediately. Otherwise, the economy waits.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 8 (2004)
Issue (Month): 02 (April)
Pages: 250-271

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Handle: RePEc:cup:macdyn:v:8:y:2004:i:02:p:250-271_03

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Find related papers by JEL classification:

• E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
• E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
• O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
• C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

References

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1. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
   
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2. Jeremy Greenwood & Boyan Jovanovic, 1998. "Accounting for Growth," NBER Working Papers 6647, National Bureau of Economic Research, Inc.
   
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4. Parente Stephen L., 1994. "Technology Adoption, Learning-by-Doing, and Economic Growth," Journal of Economic Theory, Elsevier, vol. 63(2), pages 346-369, August.
5. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Embodied technological change learning-by-doing and the productivity slowdown," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
   
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6. Boyan Jovanovic & Yaw Nyarko, 1994. "Learning By Doing and the Choice of Technology," NBER Working Papers 4739, National Bureau of Economic Research, Inc.
   
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9. Tomiyama, Ken & Rossana, Robert J., 1989. "Two-stage optimal control problems with an explicit switch point dependence : Optimality criteria and an example of delivery lags and investment," Journal of Economic Dynamics and Control, Elsevier, vol. 13(3), pages 319-337, July.
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    • Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
11. Makris, Miltiadis, 2001. "Necessary conditions for infinite-horizon discounted two-stage optimal control problems," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1935-1950, December.
12. Boyan Jovanovic, 1995. "Learning and Growth," NBER Working Papers 5383, National Bureau of Economic Research, Inc.

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Citations

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Cited by:

1. Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "Optimal regime switching and threshold effects: theory and application to a resource extraction problem under irreversibility," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 12.02, Université de Lausanne, Faculté des HEC, DEEP.
   
   • Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "Optimal Regime Switching and Threshold Effects. Theory and Application to a Resource Extraction Problem under Irreversibility," AMSE Working Papers 1213, Aix-Marseille School of Economics, Marseille, France.
   • Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "Optimal Regime Switching and Threshold Effects: Theory and Application to a Resource Extraction Problem under Irreversibility," Working Papers 12-14, LAMETA, Universtiy of Montpellier, revised May 2012.
   • Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "Optimal Regime Switching and Threshold Effects: Theory and Application to a Resource Extraction Problem under Irreversibility," Working Papers halshs-00793200, HAL.
2. Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "On the Timing and Optimality of Capital Controls: Public Expenditures, Debt Dynamics and Welfare," Working Papers 12-15, LAMETA, Universtiy of Montpellier, revised May 2012.
   
   • Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2013. "On the timing and optimality of capital controls: Public expenditures, debt dynamics and welfare," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 101-112, 03.
   • Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "On the Timing and Optimality of Capital Controls. Public Expenditures, Debt Dynamics and Welfare," AMSE Working Papers 1212, Aix-Marseille School of Economics, Marseille, France.
   • Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "On the Timing and Optimality of Capital Controls: Public Expenditures, Debt Dynamics and Welfare," Working Papers halshs-00793196, HAL.
   • Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "On the timing and optimality of capital controls: Public expenditures, debt dynamics and welfare," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 12.01, Université de Lausanne, Faculté des HEC, DEEP.
3. Raouf BOUCEKKINE & Benteng ZOU, 2010. "Catching-up with the “locomotive”: a simple theory," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
   
   • Raouf Boucekkine & Benteng Zou, 2010. "Catching-up with the "locomotive": a simple theory," Working Papers 428, Bielefeld University, Center for Mathematical Economics.
   • Raouf Boucekkine & Benteng Zou, 2010. "Catching-up with the "locomotive": a simple theory," Working Papers 2010_07, Business School - Economics, University of Glasgow.
   • Raouf Boucekkine & Benteng Zou, 2010. "Catching-up with the “locomotive”: a simple theory," CREA Discussion Paper Series 10-02, Center for Research in Economic Analysis, University of Luxembourg.
4. Gemma Larramona & Josefina Cabeza & Rosa Aisa, 2007. "Timing of migration," Economics Bulletin, AccessEcon, vol. 6(15), pages 1-10.
5. Cuong Le Van & Erol Dogan & Cagri Saglam, 2011. "Optimal timing of regime switching in optimal growth models: A Sobolev space approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00639729, HAL.
   
   • Dogan, Erol & Le Van, Cuong & Saglam, Cagri, 2011. "Optimal timing of regime switching in optimal growth models: A Sobolev space approach," Mathematical Social Sciences, Elsevier, vol. 61(2), pages 97-103, March.
   • Erol Dogan & Cuong Le Van & Cagri Saglam, 2010. "Optimal timing of regime switching in optimal growth models: A Sobolev space approach," Working Papers 16, Development and Policies Research Center (DEPOCEN), Vietnam.
   • Cuong Le Van & Erol Dogan & Cagri Saglam, 2011. "Optimal timing of regime switching in optimal growth models: A Sobolev space approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00549165, HAL.
6. repec:hal:journl:halshs-00367888 is not listed on IDEAS
7. Harada, Tsutomu, 2010. "Path-dependent economic progress and regress: The negative role of subsidies in economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 21(3), pages 197-205, August.
8. repec:ebl:ecbull:v:6:y:2007:i:15:p:1-10 is not listed on IDEAS
9. Ngo Van Long & Fabien Prieur & Klarizze Puzon & Mabel Tidball, 2013. "Markov Perfect Equilibria in Differential Games with Regime Switching," Working Papers 13-06, LAMETA, Universtiy of Montpellier, revised Mar 2013.
10. Cuong Le Van & Erol Dogan & Cagri Saglam, 2011. "Optimal timing of regime switching in optimal growth models: A Sobolev space approach," Post-Print halshs-00639729, HAL.
11. Chahim, M. & Grass, D. & Hartl, R.F. & Kort, P.M., 2012. "Product Innovation with Lumpy Investment," Discussion Paper 2012-074, Tilburg University, Center for Economic Research.

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