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An Option-Value Approach to Technology in U.S. Maufacturing: Evidence from Plant-Level Data

  • Adela Luque
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    Numerous empirical studies have examined the role of firm and industry heterogeneity in the decision to adopt new technologies using a Net Present Value framework. However, as suggested by the recently developed option-value theory, these studies may have overlooked the role of investment reversibility and uncertainty as important determinants of technology adoption. Using the option-value investment model as my underlying theoretical framework, I examine how these two factors affect the decision to adopt three advanced manufacturing technologies. My results support the option-value model’s prediction that plants operating in industries facing higher investment reversibility and lower degrees of demand and technological uncertainty are more likely to adopt advanced manufacturing technologies.

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    File URL: ftp://ftp2.census.gov/ces/wp/2000/CES-WP-00-12.pdf
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    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 00-12.

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    Date of creation: Jul 2000
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    Handle: RePEc:cen:wpaper:00-12
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    1. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Doms, Mark & Dunne, Timothy & Roberts, Mark J., 1995. "The role of technology use in the survival and growth of manufacturing plants," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 523-542, December.
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    17. Fisher, Anthony C. & Hanemann, W. Michael, 1987. "Quasi-option value: Some misconceptions dispelled," Journal of Environmental Economics and Management, Elsevier, vol. 14(2), pages 183-190, June.
    18. Lane, Sarah J, 1991. "The Determinants of Investment in New Technology," American Economic Review, American Economic Association, vol. 81(2), pages 262-65, May.
    19. Hanemann, W. Michael, 1989. "Information and the concept of option value," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 23-37, January.
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