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Costly Technology Adoption and Capital Accumulation

  • Aubhik Khan

    (Federal Reserve Bank of Philadelphia)

  • B. Ravikumar

    (University of Iowa)

We develop a model of costly technology adoption where the cost is irrecoverable and fixed. Households must decide when to switch from an existing technology to a new, more productive tecnology. Using a recursive approach, we show that there is a unique threshold level of whealth above which households will adopt the new technology and below which they will not. This threshold is independent of preference parameters and depends only on technology parameters. Prior to adoption, households invest at increasing rates, but consumption growth is constant. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.2002.0167
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 5 (2002)
Issue (Month): 2 (April)
Pages: 489-502

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Handle: RePEc:red:issued:v:5:y:2002:i:2:p:489-502
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