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American Economic Review: Vol. 90 No. 1 (March 2000)

AER Volume. 90, Issue 1 | Previous ArticleNext Article

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Optimal Adoption of Complementary Technologies

Article Citation

Jovanovic, Boyan, and Dmitriy Stolyarov. 2000. "Optimal Adoption of Complementary Technologies." American Economic Review, 90(1): 15-29.

DOI: 10.1257/aer.90.1.15

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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Authors

Jovanovic, Boyan (NYU)
Stolyarov, Dmitriy (U MI)

JEL Classifications

E22: Capital; Investment; Capacity
G31: Capital Budgeting; Fixed Investment and Inventory Studies
O33: Technological Change: Choices and Consequences; Diffusion Processes
D24: Production; Cost; Capital and Total Factor Productivity; Capacity