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The Optimal Lifetime Of Assets Under Uncertainty In The Rate Of Embodied Technical Change

  • George C. Bitros

I investigate the effects of uncertainty regarding the rate of embodied technical change on the lifetime of assets using a model where: (1) technical change increases continuously the productivity of producers' durables, (2) potential competition induces firms to pass all benefits from productivity improvements to consumers, and (3) the mean and the variance are considered sufficient statistics to describe the probability distribution of technological change. I find that in general this type of uncertainty shortens the optimal lifetime of assets. However, the robustness of the results under alternative specifications of the probability distribution of technological change remains an open question. Copyright � 2008 The Author.

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Article provided by Wiley Blackwell in its journal Metroeconomica.

Volume (Year): 59 (2008)
Issue (Month): 2 (05)
Pages: 173-188

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Handle: RePEc:bla:metroe:v:59:y:2008:i:2:p:173-188
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  1. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
  2. Morton I. Kamien & Nancy L. Schwartz, 1971. "Optimal Maintenance and Sale Age for a Machine Subject to Failure," Management Science, INFORMS, vol. 17(8), pages B495-B504, April.
  3. Georgios Bitros, 2005. "Some Novel Implications of Replacemnt and Scrapping," Macroeconomics 0504029, EconWPA.
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