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Technology Adoption Under Embodiment: A Two-Stage Optimal Control Approach

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Author Info
BOUCEKKINE, RAOUF
SAGLAM, CAGRI
VALL EE, THOMAS

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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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Publisher 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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Raouf Boucekkine & Fernando del Río & Omar Licandro, 2003. "Embodied Technological Change, Learning-by-doing and the Productivity Slowdown," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(1), pages 87-98, 03. [Downloadable!] (restricted)
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  2. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
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  3. Jeremy Greenwood & Boyan Jovanovic, 1998. "Accounting for Growth," NBER Working Papers 6647, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    • Jeremy Greenwood & Boyan Jovanovic, 2000. "Accounting for Growth," RCER Working Papers 475, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
    • Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters, in: New Developments in Productivity Analysis, pages 179-224 National Bureau of Economic Research, Inc. [Downloadable!]
  4. Tomiyama, Ken, 1985. "Two-stage optimal control problems and optimality conditions," Journal of Economic Dynamics and Control, Elsevier, vol. 9(3), pages 317-337, November. [Downloadable!] (restricted)
  5. Parente Stephen L., 1994. "Technology Adoption, Learning-by-Doing, and Economic Growth," Journal of Economic Theory, Elsevier, vol. 63(2), pages 346-369, August. [Downloadable!] (restricted)
  6. Boyan Jovanovic, 1995. "Learning and Growth," NBER Working Papers 5383, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Jovanovic, B. & Nyarko, Y., 1996. "Learning by Doing and the Choice of Technology," Working Papers 96-25, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  8. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  9. Krusell, Per, 1998. " Investment-Specific R&D and the Decline in the Relative Price of Capital," Journal of Economic Growth, Springer, vol. 3(2), pages 131-41, June. [Downloadable!] (restricted)
  10. Oded Galor & Omer Moav, 1998. "Ability Biased Technological Transition, Wage Inequality, and Economic Growth," Working Papers 98-14, Brown University, Department of Economics.
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  11. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rosa Aisa & Josefina Cabeza & Gemma Larramona, 2007. "Timing of migration," Economics Bulletin, Economics Bulletin, vol. 6(15), pages 1-10. [Downloadable!]
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