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Optimal investment in learning-curve technologies

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  • Della Seta, Marco
  • Gryglewicz, Sebastian
  • Kort, Peter M.

Abstract

We study optimal investment in technologies characterized by the learning curve. There are two investment patterns depending on the shape of the learning curve. If the learning process is slow, firms invest relatively late and on a larger scale. If the curve is steep, firms invest earlier and on a smaller scale. We further demonstrate that learning investment differs greatly from investment in technologies without learning effects. Learning investments generate substantial initial losses and are very sensitive to downside risk. We show that the most susceptible to losses and risk are technologies with intermediate speed of learning.

Suggested Citation

  • Della Seta, Marco & Gryglewicz, Sebastian & Kort, Peter M., 2012. "Optimal investment in learning-curve technologies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1462-1476.
    • Handle: RePEc:eee:dyncon:v:36:y:2012:i:10:p:1462-1476
    DOI: 10.1016/j.jedc.2012.03.014
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    More about this item

    Keywords

    Learning-curve technology; Investment timing; Investment size; Real options;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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