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Costly Technology Adoption and Capital Accumulation

  • Aubhik Khan

    (University of Virginia)

  • B. Ravikumar

    (University of Iowa)

We develop a model of costly technology adoption where the cost is irrecoverable and fixed. Households must decide when to switch from an existing technology to a new, more productive technology. Using a recursive approach, we show that there is a unique threshold level of wealth above which a household will adopt the new technology and below which it will not. This threshold is independent of preference parameters, and depends only on technological parameters. Prior to adoption, households invest at increasing rates but consumption growth is constant. We also show that richer households adopt sooner which is consistent with the evidence from the Green Revolution. Our results are robust to households having access to loans.

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File URL: http://econwpa.repec.org/eps/dev/papers/9802/9802001.pdf
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Paper provided by EconWPA in its series Development and Comp Systems with number 9802001.

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Length: 21 pages
Date of creation: 04 Feb 1998
Date of revision:
Handle: RePEc:wpa:wuwpdc:9802001
Note: Type of Document - PDF; prepared on Acrobat PDF; pages: 21 ; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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