The optimal lifetime of assets under uncertainty in the rate of embodied technical change

This file is part of IDEAS, which uses RePEc data

The optimal lifetime of assets under uncertainty in the rate of embodied technical change

Author Info

Bitros, George

Additional information is available for the following registered author(s):

George C. Bitros

Abstract

This paper investigates the effects of uncertainty emanating from technological im-provements on the optimal lifetime of assets. In does so in a dynamic model in which: a) technological change increases continuously the productivity of producers’ durables, b) po-tential competition induces firms to price their output in a way that passes all benefits to final consumers, and c) the mean and the variance are considered sufficient statistics to describe the probability distribution of technological change. From the analysis it turns out that in general this type of uncertainty shortens the optimal lifetime of assets. More specifically, the analysis shows that: replacement under uncertainty leads to optimal lifetimes of assets that are shorter than in any other mode of operation; depending on the mean rate of technological progress, , and the price elasticity of demand, , scrapping under uncertainty yields life-times that may be shorter or longer than those determined by replacement under certainty; and, irrespective of the values of these parameters, the optimal lifetime of assets from a pol-icy of scrapping under uncertainty is always shorter than that from scrapping under cer-tainty. However, the robustness of these results under alternative specifications of the prob-ability distribution of technological change remains an open question

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3620.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: May 2007
Date of revision:
Handle: RePEc:pra:mprapa:3620

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Ekkehart Schlicht).

Other versions of this item:

Article
- George C. Bitros, 2008. "The Optimal Lifetime Of Assets Under Uncertainty In The Rate Of Embodied Technical Change," Metroeconomica, Blackwell Publishing, vol. 59(2), pages 173-188, 05. [Downloadable!] (restricted)

Find related papers by JEL classification:
O22 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-06-23 (All new papers)

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.)

Bitros, George/ C, 2009. "The Theorem of Proportionality in Mainstream Capital Theory: An Assessment of its Applicability," MPRA Paper 17821, University Library of Munich, Germany. [Downloadable!]
Bitros, George, 2009. "The Theorem of Proportionality in Mainstream Capital Theory: An Assessment of its Conceptual Foundations," MPRA Paper 17436, University Library of Munich, Germany. [Downloadable!]
George Bitros, 2008. "Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent," The Review of Austrian Economics, Springer, vol. 21(4), pages 301-328, December. [Downloadable!] (restricted)

Statistics

Access and download statistics

Did you know? IDEAS was sponsored from 1997 to 2002 by the Université du Québec à Montréal.

This page was last updated on 2009-11-28.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.