Optimal Adoption of Complementary Technologies
- (pp. 15-29)
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.Citation
Jovanovic, Boyan, and Dmitriy Stolyarov. 2000. "Optimal Adoption of Complementary Technologies." American Economic Review, 90 (1): 15-29. DOI: 10.1257/aer.90.1.15JEL Classification
- 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