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Adoption Costs, Age of Capital and Technological Substitution

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Author Info
Blanca MARTINEZ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
Abstract

In this paper, we introduce adoption costs in a vintage capital model. We assume that the incorporation of technological innovations into the production sector requires an extra labor cost during a fixed period. First, we show how adoption crucially matters in the shape of short run and asymptotic dynamics. Then, we analyze the consequences of adoption costs in technological substitution extending the model in two ways : we let adoption costs depend on the technical growth rate, and we endogenize them, depending on the technological gap. When adoption costs depend on the technical growth rate, the effect of growth on optimal lifetime of machines is indeterminate; the creative destruction effect can be compensated by the adoption effect, and faster growth rates delay the technological substitution. Finally, when adoption costs are endogenous, we recover the typical obsolescence effect in vintage capital models and show that technological progress has a negative effect on the technological gap.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2002024.

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Length: 30
Date of creation: 01 Jun 2002
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Handle: RePEc:ctl:louvir:2002024

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Related research
Keywords: Machine replacement; Optimal scrapping; Economic fluctuations; Technology adoption;

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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 and Programming - - - Computational Techniques

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  1. Jeremy Greenwood & Boyan Jovanovic, 1998. "Accounting for Growth," NBER Working Papers 6647, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • 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!]
  2. Boucekkine, Raouf & Martinez, Blanca, 1999. "Machine Replacement, Technology Adoption and Convergence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  3. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April. [Downloadable!] (restricted)
  4. William Easterly & Robert King & Ross Levine & Sergio Rebelo, 1994. "Policy, Technology Adoption, and Growth," NBER Working Papers 4681, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Malcomson, James M., 1975. "Replacement and the rental value of capital equipment subject to obsolescence," Journal of Economic Theory, Elsevier, vol. 10(1), pages 24-41, February. [Downloadable!] (restricted)
  6. 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)
  7. Evenson, R.E. & Westphal, L.E., 1994. "Technological Change and Technology Strategy," Papers 709, Yale - Economic Growth Center.
  8. van Hilten, Onno, 1991. "The optimal lifetime of capital equipment," Journal of Economic Theory, Elsevier, vol. 55(2), pages 449-454, December. [Downloadable!] (restricted)
  9. Boucekkine, Raouf, et al, 1998. " Creative Destruction, Investment Volatility, and the Average Age of Capital," Journal of Economic Growth, Springer, vol. 3(4), pages 361-84, December. [Downloadable!] (restricted)
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  10. Boucekkine, Raouf & Germain, Marc & Licandro, Omar, 1997. "Replacement Echoes in the Vintage Capital Growth Model," Journal of Economic Theory, Elsevier, vol. 74(2), pages 333-348, June. [Downloadable!] (restricted)
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  11. Boucekkine, Raouf & Licandro, Omar & Paul, Christopher, 1997. "Differential-difference equations in economics: On the numerical solution of vintage capital growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 347-362. [Downloadable!] (restricted)
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  12. Magnac, T. & Verdier, T., 1993. "Welfare aspects of technological adoption with learning," Journal of Public Economics, Elsevier, vol. 52(1), pages 31-48, August. [Downloadable!] (restricted)
    Other versions:
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