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Backstop Technology Adoption

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  • Matti Liski
  • Pauli Murto

Abstract

We consider how efficient markets adopt technologies that reduce dependence on volatile factors such as oil. We find a relationship between volatility and technology overlap: new technology entry rate exceeds old technology exit rate under sufficient uncertainty. From this follows that efficient adoption is characterized by prolonged coexistence of alternative technologies and that uncertainty increasingly propagates from input to output market despite the declining use of the volatile factor in production. The properties depend on (i) the option to remain idle rather than exit, (ii) heterogeneity in factor supply, and (iii) factor market volatility

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 260.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:260

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Keywords: technology adoption; factor markets; uncertainty; irreversible investment; energy;

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