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Optimal Adoption of Complementary Technologies

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  • Jovanovic, Boyan
  • Stolyarov, Dmitriy

Abstract

When a production process requires two extremely complementary inputs, conventional wisdom holds that a firm would always upgrade them simultaneously. We show, however, that if upgrading each input involves a fixed cost, the firm may upgrade them at different dates, "asynchronously." This insight helps us understand why productivity rises with the age of a plant, why investment in structures is more spiked than equipment investment, and why plants have spare capacity. The bigger point of the paper is that complementarity does not necessarily imply comovement--not even for a single decision maker.
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Suggested Citation

  • Jovanovic, Boyan & Stolyarov, Dmitriy, 1997. "Optimal Adoption of Complementary Technologies," Working Papers 97-27, C.V. Starr Center for Applied Economics, New York University.
    • Handle: RePEc:cvs:starer:97-27
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    References listed on IDEAS

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    1. Murray Brown, 1967. "The Theory and Empirical Analysis of Production," NBER Books, National Bureau of Economic Research, Inc, number brow67-1, March.
    2. Peter Diamond (ed.), 1990. "Growth / Productivity / Unemployment," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041103, December.
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    4. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-753, May.
    5. Michael Gort & Raford Boddy, 1967. "Vintage Effects and the Time Path of Investment in Production Relations," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 395-430, National Bureau of Economic Research, Inc.
    6. Mehmet Yorukoglu, 1998. "The Information Technology Productivity Paradox," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 551-592, April.
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    More about this item

    Keywords

    Complementary technologies; investment;

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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