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Technology adoption under uncertainty in general equilibrium

Author

Listed:
  • Julien Hugonnier
  • Erwan Morellec
  • Aude Pommeret

    (DEEP University of Lausanne)

Abstract

Investment is often irreversible, especially at the aggregate level. This paper proposes and solves a general equilibrium model of technology adotpion when investment in the new technlogy is irreversible. In contrast to prior research, we consider a setup where the returns on technology adoption are uncertain. We find that even without learning by doing it may be optimal for the representative agent to wait before acquiring the technlogy. We relate the timing of technology adoption to the risk aversion of the representative agent and demonstrate that the value of waiting to invest quickly disappears with the introduction of risk aversion in an equilibrium framework

Suggested Citation

  • Julien Hugonnier & Erwan Morellec & Aude Pommeret, 2006. "Technology adoption under uncertainty in general equilibrium," 2006 Meeting Papers 692, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:692
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    Citations

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    Cited by:

    1. Caliendo, Frank N. & Gorry, Aspen & Slavov, Sita, 2019. "The cost of uncertainty about the timing of Social Security reform," European Economic Review, Elsevier, vol. 118(C), pages 101-125.

    More about this item

    Keywords

    General equilibrium; technology adoption; uncertainty;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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