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Adoption Costs, Age of Capital and Technological Substitution

Author

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  • Blanca MARTINEZ

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

In this paper, we introduce adoption costs in a vintage capital model. We assume that the incorporation of technological innovations into the production sector requires an extra labor cost during a fixed period. First, we show how adoption crucially matters in the shape of short run and asymptotic dynamics. Then, we analyze the consequences of adoption costs in technological substitution extending the model in two ways : we let adoption costs depend on the technical growth rate, and we endogenize them, depending on the technological gap. When adoption costs depend on the technical growth rate, the effect of growth on optimal lifetime of machines is indeterminate; the creative destruction effect can be compensated by the adoption effect, and faster growth rates delay the technological substitution. Finally, when adoption costs are endogenous, we recover the typical obsolescence effect in vintage capital models and show that technological progress has a negative effect on the technological gap.

Suggested Citation

  • Blanca MARTINEZ, 2002. "Adoption Costs, Age of Capital and Technological Substitution," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2002024
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2002-24.pdf
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    References listed on IDEAS

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    1. Boucekkine, Raouf & Martinez, Blanca, 1999. "Machine Replacement, Technology Adoption and Convergence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    2. Parente Stephen L., 1994. "Technology Adoption, Learning-by-Doing, and Economic Growth," Journal of Economic Theory, Elsevier, vol. 63(2), pages 346-369, August.
    3. Malcomson, James M., 1975. "Replacement and the rental value of capital equipment subject to obsolescence," Journal of Economic Theory, Elsevier, vol. 10(1), pages 24-41, February.
    4. Boucekkine, Raouf & Licandro, Omar & Paul, Christopher, 1997. "Differential-difference equations in economics: On the numerical solution of vintage capital growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 347-362.
    5. Boucekkine, Raouf & Germain, Marc & Licandro, Omar, 1997. "Replacement Echoes in the Vintage Capital Growth Model," Journal of Economic Theory, Elsevier, vol. 74(2), pages 333-348, June.
    6. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-583, August.
    7. Boucekkine, Raouf & Germain, Marc & Licandro, Omar & Magnus, Alphonse, 1998. "Creative Destruction, Investment Volatility, and the Average Age of Capital," Journal of Economic Growth, Springer, vol. 3(4), pages 361-384, December.
    8. Paul S. Adler & Kim B. Clark, 1991. "Behind the Learning Curve: A Sketch of the Learning Process," Management Science, INFORMS, vol. 37(3), pages 267-281, March.
    9. Magnac, T. & Verdier, T., 1993. "Welfare aspects of technological adoption with learning," Journal of Public Economics, Elsevier, vol. 52(1), pages 31-48, August.
    10. Easterly, William & King, Robert G & Levine, Ross & Rebelo, Sérgio, 1994. "Policy, Technology Adoption and Growth," CEPR Discussion Papers 957, C.E.P.R. Discussion Papers.
    11. Evenson, R.E. & Westphal, L.E., 1994. "Technological Change and Technology Strategy," Papers 709, Yale - Economic Growth Center.
    12. Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters,in: New Developments in Productivity Analysis, pages 179-224 National Bureau of Economic Research, Inc.
    13. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
    14. Navaretti, Giorgio Barba & Soloaga, Isidro & Takacs, Wendy, 1998. "When vintage technology makes sense : matching imports to skills," Policy Research Working Paper Series 1923, The World Bank.
    15. van Hilten, Onno, 1991. "The optimal lifetime of capital equipment," Journal of Economic Theory, Elsevier, vol. 55(2), pages 449-454, December.
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    Cited by:

    1. Boucekkine, Raouf & Martinez, Blanca, 2003. "Replacement, adoption and economic dynamics: lessons from a canonical creative destruction model," Structural Change and Economic Dynamics, Elsevier, vol. 14(3), pages 339-359, September.

    More about this item

    Keywords

    Machine replacement; Optimal scrapping; Economic fluctuations; Technology adoption;

    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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