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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. 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.
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    3. Jim Bessen, 1997. "Productivity Adjustments and Learning-by-Doing as Human Capital," Working Papers 97-17, Center for Economic Studies, U.S. Census Bureau.
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    Cited by:

    1. Fındık, Derya & Tansel, Aysit, 2013. "Resources on the stage: a firm level analysis of the ict adoption in Turkey," MPRA Paper 65956, University Library of Munich, Germany, revised 05 Aug 2014.
    2. Bronwyn H. Hall, 2004. "Innovation and Diffusion," NBER Working Papers 10212, National Bureau of Economic Research, Inc.
    3. Johannes Van Biesebroeck, 2007. "Complementarities in automobile production," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1315-1345.
    4. Howell, Bronwyn, 2006. "Competition, Regulation and Broadband Diffusion: the Case of New Zealand," Working Paper Series 3833, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    5. Howell, Bronwyn, 2008. "The Role of Price Structure in Telecommunications Technology Diffusion," Working Paper Series 4011, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    6. Marisa Cenci & Margherita Scarlato, 2002. "Istituzioni e mercato del lavoro nel Mezzogiorno d’Italia: un’analisi dinamica," Rivista di Politica Economica, SIPI Spa, vol. 92(3), pages 281-320, May-June.
    7. Takii, Katsuya, 2009. "Limited attention, interaction and the gradual adjustment of a firm's decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 345-362, February.
    8. Patriarca, Fabrizio, 2012. "Time-to-build, obsolescence and the technological paradox," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 1-10.
    9. Bronwyn HOWELL & Arthur GRIMES, 2010. "Productivity Questions for Public Sector Fast Fibre Network Financiers," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(78), pages 127-146, 2nd quart.
    10. Philipp Köllinger & Christian Schade, 2006. "Endogenous Acceleration of Technological Change," Discussion Papers of DIW Berlin 562, DIW Berlin, German Institute for Economic Research.
    11. Mulder, Peter & de Groot, Henri L. F. & Hofkes, Marjan W., 2003. "Explaining slow diffusion of energy-saving technologies; a vintage model with returns to diversity and learning-by-using," Resource and Energy Economics, Elsevier, vol. 25(1), pages 105-126, February.
    12. Koellinger, Ph.D. & Schade, C., 2010. "The Influence of Installed Technologies on Future Adoption Decisions: Empirical Evidence from E-Business," ERIM Report Series Research in Management ERS-2010-012-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    13. Carlaw, Kenneth I., 2005. "Optimal obsolescence," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 69(1), pages 21-45.
    14. Kounetas, Kostas & Tsekouras, Kostas, 2010. "Are the Energy Efficiency Technologies efficient?," Economic Modelling, Elsevier, vol. 27(1), pages 274-283, January.
    15. Daniel J. Wilson, 2004. "Investment behavior of U.S. firms over heterogeneous capital goods: a snapshot," Working Paper Series 2004-21, Federal Reserve Bank of San Francisco.
    16. Useche, Pilar & Barham, Bradford L. & Foltz, Jeremy D., 2005. "A Trait Specific Model of GM Crop Adoption among U.S. Corn Farmers in the Upper Midwest," 2005 Annual meeting, July 24-27, Providence, RI 19202, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Parsons, Christopher A. & Van Wesep, Edward D., 2013. "The timing of pay," Journal of Financial Economics, Elsevier, vol. 109(2), pages 373-397.
    18. Roy Thurik, 2014. "Entrepreneurship and the business cycle," IZA World of Labor, Institute for the Study of Labor (IZA), pages 1-90, October.
    19. Seong-Hoon Lee & Michael Gort, 2001. "The Life Cycles of Industrial Plants," Working Papers 01-10, Center for Economic Studies, U.S. Census Bureau.
    20. Maliranta, Mika, . "Micro Level Dynamics of Productivity Growth. An Empirical Analysis of the Great Leap in Finnish Manufacturing Productivity in 1975-2000," ETLA A, The Research Institute of the Finnish Economy, number 38, 01-2015.
    21. Eugenio Pinto, 2006. "Firm Dynamics with Infrequent Adjustment and Learning," Computing in Economics and Finance 2006 467, Society for Computational Economics.
    22. Pfeiffer, Birte & Mulder, Peter, 2013. "Explaining the diffusion of renewable energy technology in developing countries," Energy Economics, Elsevier, vol. 40(C), pages 285-296.
    23. Useche, Pilar & Barham, Bradford & Foltz, Jeremy, 2006. "A Trait Specific Model of GM Crop Adoption by Minnesota and Wisconsin Corn Farmers," Working Papers 201525, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    24. Katsuya Takii, 2005. "Limited Attention, Interaction and the Growth of a Firm," Macroeconomics 0506005, University Library of Munich, Germany.

    More about this item

    Keywords

    Complementary technologies; investment;

    JEL classification:

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

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