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Technological breakthroughs and asset replacement

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  • YATSENKO, Yuri
  • HRITONENKO, Natali

Abstract

The authors analyze the optimal replacement of assets under continuous and discontinuous technological change. They investigate the variable lifetime of assets in an infinite-horizon replacement problem. Due to deterioration, the maintenance cost increases when the asset becomes older. Because of technological change, both maintenance and new capital costs decrease for a fixed asset age. The dynamics of the optimal lifetime is investigated analytically and numerically under technological change in the cases of one and several technological breakthroughs. It is shown that the breakthroughs cause irregularities (anticipation echoes) in the asset lifetime before the breakthrough time.
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Suggested Citation

  • YATSENKO, Yuri & HRITONENKO, Natali, 2009. "Technological breakthroughs and asset replacement," CORE Discussion Papers RP 2121, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:2121
    Note: In : The Engineering Economist, 54, 81-100, 2009
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    File URL: http://dx.doi.org/10.1080/00137910902893656
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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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