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Technology Adoption Under Embodiment: A Two-Stage Optimal Control Approach

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  • BOUCEKKINE, RAOUF
  • SAGLAM, CAGRI
  • VALL EE, 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
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Boucekkine, Raouf & Saglam, Cagri & Vall Ee, Thomas, 2004. "Technology Adoption Under Embodiment: A Two-Stage Optimal Control Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 8(02), pages 250-271, April.
  • Handle: RePEc:cup:macdyn:v:8:y:2004:i:02:p:250-271_03
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    References listed on IDEAS

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    7. 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 131-141, June.
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    Citations

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    Cited by:

    1. Raouf Boucekkine & Benteng Zou, 2010. "Catching-up with the “locomotive”: a simple theory," CREA Discussion Paper Series 10-02, Center for Research in Economic Analysis, University of Luxembourg.
    2. Bonneuil, N. & Boucekkine, R., 2016. "Optimal transition to renewable energy with threshold of irreversible pollution," European Journal of Operational Research, Elsevier, pages 257-262.
    3. M. Chahim & D. Grass & R. F. Hartl & P. M. Kort, 2017. "Product innovation with lumpy investment," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(1), pages 159-182, March.
    4. Supratim Das Gupta, 2015. "Dynamics of Switching from Polluting Resources to Green Technologies," International Journal of Energy Economics and Policy, Econjournals, pages 1109-1124.
    5. Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2012. "Optimal Regime Switching and Threshold Effects: Theory and Application to a Resource Extraction Problem under Irreversibility," Working Papers 12-14, LAMETA, Universtiy of Montpellier, revised May 2012.
    6. Vallée, Thomas & Moreno-Galbis, Eva, 2011. "Optimal time switching from tayloristic to holistic workplace organization," Structural Change and Economic Dynamics, Elsevier, vol. 22(3), pages 238-246, September.
    7. Ngo Van Long & Fabien Prieur & Klarizze Puzon & Mabel Tidball, 2013. "Markov Perfect Equilibria in Differential Games with Regime Switching Strategies," Working Papers 13-06, LAMETA, Universtiy of Montpellier, revised Jan 2014.
    8. Boucekkine, Raouf & Zou, Benteng, 2011. "Catching-up with the "locomotive"," Center for Mathematical Economics Working Papers 428, Center for Mathematical Economics, Bielefeld University.
    9. Raouf Boucekkine & Aude Pommeret & Fabien Prieur, 2013. "On the timing and optimality of capital controls: Public expenditures, debt dynamics and welfare," International Journal of Economic Theory, The International Society for Economic Theory, pages 101-112.
    10. Zon, Adriaan van, 2016. "On the optimum timing of the global carbon-transition under conditions of extreme weather-related damages: further green paradoxical results," MERIT Working Papers 010, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    11. Daria Onori, 2015. "Optimal Growth and Debt Dynamics under GDP-Based Collaterals," Working Papers halshs-01251352, HAL.
    12. repec:hal:journl:halshs-00639729 is not listed on IDEAS
    13. Dogan, Erol & Le Van, Cuong & Saglam, Cagri, 2011. "Optimal timing of regime switching in optimal growth models: A Sobolev space approach," Mathematical Social Sciences, Elsevier, pages 97-103.
    14. Kuhn, Michael & Wrzaczek, Stefan & Prskawetz, Alexia & Feichtinger, Gustav, 2015. "Optimal choice of health and retirement in a life-cycle model," Journal of Economic Theory, Elsevier, pages 186-212.
    15. Gemma Larramona & Josefina Cabeza & Rosa Aisa, 2007. "Timing of migration," Economics Bulletin, AccessEcon, vol. 6(15), pages 1-10.
    16. Katrin Millock & Angels Xabadia & David Zilberman, 2009. "Investment Policy for New Environmental Monitoring Technologies to Manage Stock Externalities," Documents de travail du Centre d'Economie de la Sorbonne 09010, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    17. repec:ebl:ecbull:v:6:y:2007:i:15:p:1-10 is not listed on IDEAS
    18. Long, Ngo Van & Prieur, Fabien & Tidball, Mabel & Puzon, Klarizze, 2017. "Piecewise closed-loop equilibria in differential games with regime switching strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 264-284.
    19. Caliendo Frank N. & Guo Nick L., 2014. "Optimal Control Problems with State Specific Jumps in the State Equation," Mathematical Economics Letters, De Gruyter, vol. 1(2-4), pages 1-8, July.
    20. Behringer, Stefan & Upmann, Thorsten, 2017. "Harvesting a Remote Renewable Resource," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168250, Verein für Socialpolitik / German Economic Association.
    21. 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.
    22. Frank N. Caliendo & Aspen Gorry & Sita Slavov, 2015. "The Cost of Uncertainty about the Timing of Social Security Reform," NBER Working Papers 21585, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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