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THE OPTIMAL LIFETIME OF ASSETS UNDER UNCERTAINTY IN THE RATE OF EMBODIED TECHNICAL CHANGE
Author(s) -
Bitros George C.
Publication year - 2008
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.2008.00298.x
Subject(s) - technical change , robustness (evolution) , technological change , economics , variance (accounting) , econometrics , productivity , embodied cognition , distribution (mathematics) , competition (biology) , probability distribution , microeconomics , computer science , statistics , mathematics , macroeconomics , mathematical analysis , ecology , biochemistry , accounting , artificial intelligence , biology , gene , chemistry
I investigate the effects of uncertainty regarding the rate of embodied technical change on the lifetime of assets using a model where: (1) technical change increases continuously the productivity of producers’ durables, (2) potential competition induces firms to pass all benefits from productivity improvements to consumers, and (3) the mean and the variance are considered sufficient statistics to describe the probability distribution of technological change. I find that in general this type of uncertainty shortens the optimal lifetime of assets. However, the robustness of the results under alternative specifications of the probability distribution of technological change remains an open question.