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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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    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
    Date of revision:
    Handle: RePEc:cen:wpaper:00-12
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    1. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
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    6. Jennifer F. Reinganum, 1981. "Market Structure and the Diffusion of New Technology," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 618-624, Autumn.
    7. Stoneman, P, 1981. "Intra-Firm Diffusion, Bayesian Learning and Profitability," Economic Journal, Royal Economic Society, vol. 91(362), pages 375-88, June.
    8. Mark E Doms, 1992. "Estimating Capital Efficiency Schedules Within Production Functions," Working Papers 92-4, Center for Economic Studies, U.S. Census Bureau.
    9. Lane, Sarah J, 1991. "The Determinants of Investment in New Technology," American Economic Review, American Economic Association, vol. 81(2), pages 262-65, May.
    10. Pakes, A. & Ericson, R., 1990. "Empirical Implications Of Alternative Models Of Firm Dynamics," Papers 594, Yale - Economic Growth Center.
    11. Lambson, V.E., 1989. "Industry Evolution With Sunk Costs And Uncertian Market Conditions," Working papers 8904, Wisconsin Madison - Social Systems.
    12. Bartelsman, Eric J & Caballero, Ricardo J & Lyons, Richard K, 1994. "Customer- and Supplier-Driven Externalities," American Economic Review, American Economic Association, vol. 84(4), pages 1075-84, September.
    13. 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.
    14. Rosenberg, Nathan, 1976. "On Technological Expectations," Economic Journal, Royal Economic Society, vol. 86(343), pages 523-35, September.
    15. Romeo, Anthony A, 1975. "Interindustry and Interfirm Differences in the Rate of Diffusion of an Innovation," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 311-19, August.
    16. 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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    19. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    20. repec:oup:qjecon:v:98:y:1983:i:1:p:85-106 is not listed on IDEAS
    21. repec:oup:restud:v:52:y:1985:i:3:p:383-401 is not listed on IDEAS
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