Backstop Technology Adoption

Matti Liski () and Pauli Murto

No 260, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We consider how efficient markets adopt technologies that reduce dependence on volatile factors such as oil. We find a relationship between volatility and technology overlap: new technology entry rate exceeds old technology exit rate under sufficient uncertainty. From this follows that efficient adoption is characterized by prolonged coexistence of alternative technologies and that uncertainty increasingly propagates from input to output market despite the declining use of the volatile factor in production. The properties depend on (i) the option to remain idle rather than exit, (ii) heterogeneity in factor supply, and (iii) factor market volatility

Keywords: technology adoption; factor markets; uncertainty; irreversible investment; energy (search for similar items in EconPapers)
JEL-codes: D9 O30 Q40 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-ene and nep-ino
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:260

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