Costly Technology Adoption and Capital Accumulation

FRB of Philadelphia Working Paper No. 00-7

41 Pages Posted: 17 Oct 2000

See all articles by Aubhik Khan

Aubhik Khan

Ohio State University (OSU)

B. Ravikumar

Federal Reserve Bank of Saint Louis

Date Written: August 2000

Abstract

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

Khan, Aubhik and Ravikumar, B., Costly Technology Adoption and Capital Accumulation (August 2000). FRB of Philadelphia Working Paper No. 00-7. Available at SSRN: https://ssrn.com/abstract=244559 or http://dx.doi.org/10.2139/ssrn.244559

Aubhik Khan (Contact Author)

Ohio State University (OSU) ( email )

2120 Fyffe Road
Columbus, OH OH 43210
United States

B. Ravikumar

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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