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Technology adoption under embodiment: a two-stage optimal control approach

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  • BOUCEKKINE, RAOUF
  • SAGLAM , Cagri
  • VALLÉE, Thomas

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

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003055.

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Date of creation: 00 Jul 2003
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Handle: RePEc:cor:louvco:2003055

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Keywords: optimal control; adoption; learning; embodiment;

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References

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  1. Oded Galor & Omer Moav, 2000. "Ability-Biased Technological Transition, Wage Inequality, And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 469-497, May.
  2. Raouf Boucekkine & Fernando del Río & Omar Licandro, 2003. "Embodied Technological Change, Learning-by-doing and the Productivity Slowdown," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 87-98, 03.
  3. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  4. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
  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.
  6. 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.
  7. 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.
  8. 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.
  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.
  10. Boyan Jovanovic, 1995. "Learning and Growth," NBER Working Papers 5383, National Bureau of Economic Research, Inc.
  11. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, vol. 64(6), pages 1299-1310, November.
  12. 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.
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Citations

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Cited by:
  1. 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.
  2. 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.
  3. repec:ebl:ecbull:v:6:y:2007:i:15:p:1-10 is not listed on IDEAS
  4. Raouf Boucekkine & Benteng Zou, 2010. "Catching-up with the "locomotive": a simple theory," Working Papers 2010_07, Business School - Economics, University of Glasgow.
  5. repec:hal:cesptp:halshs-00639729 is not listed on IDEAS
  6. 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.
  7. Ngo Van Long & Fabien Prieur & Klarizze Puzon & Mabel Tidball, 2014. "Markov Perfect Equilibria in Differential Games with Regime Switching Strategies," CESifo Working Paper Series 4662, CESifo Group Munich.
  8. repec:hal:journl:halshs-00639729 is not listed on IDEAS
  9. 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.
  10. 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.
  11. repec:hal:journl:halshs-00367888 is not listed on IDEAS
  12. Gemma Larramona & Josefina Cabeza & Rosa Aisa, 2007. "Timing of migration," Economics Bulletin, AccessEcon, vol. 6(15), pages 1-10.

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