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Costly Technology Adoption and Capital Accumulation

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  • Aubhik Khan

    (University of Virginia)

  • B. Ravikumar

    (University of Iowa)

Abstract

We develop a model of costly technology adoption where the cost is irrecoverable and fixed. Households must decide when to switch from an existing technology to a new, more productive technology. Using a recursive approach, we show that there is a unique threshold level of wealth above which a household will adopt the new technology and below which it will not. This threshold is independent of preference parameters, and depends only on technological parameters. Prior to adoption, households invest at increasing rates but consumption growth is constant. We also show that richer households adopt sooner which is consistent with the evidence from the Green Revolution. Our results are robust to households having access to loans.

Suggested Citation

  • Aubhik Khan & B. Ravikumar, 1998. "Costly Technology Adoption and Capital Accumulation," Development and Comp Systems 9802001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpdc:9802001
    Note: Type of Document - PDF; prepared on Acrobat PDF; pages: 21 ; figures: included
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    Cited by:

    1. Yi-Chan Tsai, 2010. "News Shocks and Costly Technology Adoption," 2010 Meeting Papers 567, Society for Economic Dynamics.
    2. Olivier Bruno & Cuong Van & Benoît Masquin, 2009. "When does a developing country use new technologies?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 275-300, August.
    3. Mateos-Planas, Xavier, 2004. "Technology adoption with finite horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2129-2154, October.
    4. Pal, Rupayan, 2010. "Technology adoption in a differentiated duopoly: Cournot versus Bertrand," Research in Economics, Elsevier, vol. 64(2), pages 128-136, June.
    5. Aubhik Khan & B. Ravikumar, 2002. "Costly Technology Adoption and Capital Accumulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 489-502, April.
    6. Galina Vereshchagina & Hugo A. Hopenhayn, 2009. "Risk Taking by Entrepreneurs," American Economic Review, American Economic Association, vol. 99(5), pages 1808-1830, December.
    7. Asif, Zainab & Chinzara, Zivanemoyo & Lahiri, Radhika, 2023. "The role of risk and institutions in the adoption and diffusion of technologies: Evidence from Sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 16-33.
    8. Giuseppe Fiori & Filippo Scoccianti, 2021. "Aggregate dynamics and microeconomic heterogeneity: the role of vintage technology," Questioni di Economia e Finanza (Occasional Papers) 651, Bank of Italy, Economic Research and International Relations Area.
    9. Christoph Görtz & Afrasiab Mirza, 2014. "On the Applicability of Global Approximation Methods for Models with Jump Discontinuities in Policy Functions," CESifo Working Paper Series 4837, CESifo.
    10. Ziv Chinzara & Radhika Lahiri, 2012. "Economic growth and inequality patterns in the presence of costly technology adoption and uncertainty," School of Economics and Finance Discussion Papers and Working Papers Series 280, School of Economics and Finance, Queensland University of Technology.
    11. Lahiri, Radhika & Ding, Juhong & Chinzara, Zivanemoyo, 2018. "Technology adoption, adaptation and growth," Economic Modelling, Elsevier, vol. 70(C), pages 469-483.
    12. Djiby Racine Thiam & Ariel Dinar & Hebert Ntuli, 2021. "Promotion of residential water conservation measures in South Africa: the role of water-saving equipment," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(1), pages 173-210, January.
    13. Radhika Lahiri & Shyama Ratnasiri, 2007. "Concerning Technology Adoption and Inequality," School of Economics and Finance Discussion Papers and Working Papers Series 215, School of Economics and Finance, Queensland University of Technology.
    14. Maria Cunha-e-Sá & Ana Reis, 2007. "The Optimal Timing of Adoption of a Green Technology," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(1), pages 35-55, January.
    15. Galina Vereshchagina, 2014. "Preferences for Risk in Dynamic Models with Adjustment Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 86-106, January.
    16. Radhika Lahiri & Shyama Ratnasiri, 2012. "Growth Patterns and Inequality in the Presence of Costly Technology Adoption," Southern Economic Journal, John Wiley & Sons, vol. 79(1), pages 203-223, July.

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    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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