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Optimal Adoption of Complementary Technologies

Author

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  • Dmitriy Stolyarov
  • Boyan Jovanovic

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.

Suggested Citation

  • Dmitriy Stolyarov & Boyan Jovanovic, 2000. "Optimal Adoption of Complementary Technologies," American Economic Review, American Economic Association, vol. 90(1), pages 15-29, March.
    • Handle: RePEc:aea:aecrev:v:90:y:2000:i:1:p:15-29
    Note: DOI: 10.1257/aer.90.1.15
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    References listed on IDEAS

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    1. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-753, May.
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    3. Murray Brown, 1967. "The Theory and Empirical Analysis of Production," NBER Books, National Bureau of Economic Research, Inc, number brow67-1, June.
    4. Peter Diamond (ed.), 1990. "Growth / Productivity / Unemployment," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041103, December.
    5. Jim Bessen, 1997. "Productivity Adjustments and Learning-by-Doing as Human Capital," Working Papers 97-17, Center for Economic Studies, U.S. Census Bureau.
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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