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.:
- Douglas Gale, 1996. "Delay and Cycles," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 169-198.
- Boyan Jovanovic & Yaw Nyarko, 1994.
"Learning By Doing and the Choice of Technology,"
NBER Working Papers
4739, National Bureau of Economic Research, Inc.
- 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.
- Adsera, Alicia & Ray, Debraj, 1998. "History and Coordination Failure," Journal of Economic Growth, Springer, vol. 3(3), pages 267-76, September.
- Andrew C. Caplin & Daniel F. Spulber, 1987.
"Menu Costs and the Neutrality of Money,"
NBER Working Papers
2311, National Bureau of Economic Research, Inc.
- Giuseppe Bertola & Ricardo J. Caballero, 1990. "Kinked Adjustment Costs and Aggregate Dynamics," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 237-296 National Bureau of Economic Research, Inc.
- Kiminori Matsuyama, 1991.
"Increasing Returns, Industrialization, and Indeterminacy of Equilibrium,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 106(2), pages 617-650.
- Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gale, Douglas, 1995.
"Dynamic Coordination Games,"
Springer, vol. 5(1), pages 1-18, January.
- Russell Cooper & John Haltiwanger & Laura Power, 1995.
"Machine Replacement and the Business Cycle: Lumps and Bumps,"
0062, Boston University - Industry Studies Programme.
- 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," NBER Working Papers 5260, National Bureau of Economic Research, Inc.
- Shleifer, Andrei, 1986.
Journal of Political Economy,
University of Chicago Press, vol. 94(6), pages 1163-90, December.
- Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
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.