Machine replacement, Network Externalities and Investment Cycles
This paper presents a model where agents decide on the timing of replacement of ageing machines. The optimal replacement policy for an agent is influenced by other agents' decisions because the productivity of a particular vintage displays network externalities that set in with a lag. In equilibrium, agents follow innovation cycles with a frequency that is lower than optimal, so there is too much delay. One extreme case is the possibility of inefficient collapse: for some parameters there is no investment in equilibrium, even though it is socially optimal that agents (eventually) invest in cycles. Another feature of the model is the tendency of agents to synchronize their individual decisions, and thus the outcome of the aggregate economy does not smooth out the non- convexities present at the microeconomic level.
|Date of creation:||04 Feb 2003|
|Date of revision:|
|Note:||Type of Document - pdf file; prepared on Scientific Workplace; to print on any printer; pages: 42 ; figures: included in text|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gale, Douglas, 1995.
"Dynamic Coordination Games,"
Springer, vol. 5(1), pages 1-18, January.
- Giuseppe Bertola & Ricardo J. Caballero, 1990.
"Kinked Adjustment Costs and Aggregate Dynamics,"
in: NBER Macroeconomics Annual 1990, Volume 5, pages 237-296
National Bureau of Economic Research, Inc.
- Caplin, Andrew S & Spulber, Daniel F, 1987.
"Menu Costs and the Neutrality of Money,"
The Quarterly Journal of Economics,
MIT Press, vol. 102(4), pages 703-25, November.
- Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
- Jovanovic, Boyan & Nyarko, Yaw, 1996.
"Learning by Doing and the Choice of Technology,"
Econometric Society, vol. 64(6), pages 1299-1310, November.
- Boyan Jovanovic & Yaw Nyarko, 1994. "Learning By Doing and the Choice of Technology," NBER Working Papers 4739, National Bureau of Economic Research, Inc.
- Jovanovic, B. & Nyarko, Y., 1996. "Learning by Doing and the Choice of Technology," Working Papers 96-25, C.V. Starr Center for Applied Economics, New York University.
- Adsera, Alicia & Ray, Debraj, 1998. " History and Coordination Failure," Journal of Economic Growth, Springer, vol. 3(3), pages 267-76, September.
- Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
- Cooper, Russell W. & Haltiwanger, John Jr., 1992.
"Macroeconomic implications of production bunching : Factor demand linkages,"
Journal of Monetary Economics,
Elsevier, vol. 30(1), pages 107-127, October.
- Russell Cooper & John Haltiwanger, 1990. "Macroeconomic Implications of Production Bunching: Factor Demand Linkages," Papers 0001, Boston University - Industry Studies Programme.
- Russell Cooper & John Haltiwanger & Laura Power, 1995.
"Machine Replacement and the Business Cycle: Lumps and Bumps,"
NBER Working Papers
5260, National Bureau of Economic Research, Inc.
- John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
- Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," Papers 0062, Boston University - Industry Studies Programme.
- Kiminori Matsuyama, 1990.
"Increasing Returns, Industrialization and Indeterminacy of Equilibrium,"
878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Matsuyama, Kiminori, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 617-50, May.
- Shleifer, Andrei, 1986.
Journal of Political Economy,
University of Chicago Press, vol. 94(6), pages 1163-90, December.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0302001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.