Optimal Investment in Learning-Curve Technologies

Abstract:     
We study optimal investment in technologies characterized by the learning curve. There are two investment patterns depending on the shape of the learning curve. If the learning process is slow, firms invest relatively late and on a larger scale. If the curve is steep, firms invest earlier and on a smaller scale. We further demonstrate that learning investment differs greatly from investment in technologies without learning effects. Learning investments generate substantial initial losses and are very sensitive to downside risk. We show that the most susceptible to losses and risk are technologies with intermediate speed of learning.

Number of Pages in PDF File: 41

Keywords: investment, learning by doing, investment timing, investment scale

JEL Classification: D92, G31

Accepted Paper Series