Costly Technology Adoption and Capital Accumulation
FRB of Philadelphia Working Paper No. 00-7
41 Pages Posted: 17 Oct 2000
Date Written: August 2000
The authors 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, the authors show that there is a unique threshold level of wealth above which households will adopt the new technology and below which they will not. This threshold is independent of preference parameters and depends only on technology parameters. Prior to adoption, households invest at increasing rates, but consumption growth is constant. The authors also show that richer households adopt sooner and that income inequality increases over time. Both these results are consistent with the evidence from the Green Revolution.
JEL Classification: O10, O33
Suggested Citation: Suggested Citation