irreversible choice of uncertain technologies with network externalities in this article i explore the problem of sequential and irreversible technology choice in the presence of network externalities when the technologies stochastically evolve over time early potential users are shown to adopt an irreversible technology too early compared to the social optimum the effect of increasing the uncertainty of the technologies on an early potential user s decision is analyzed i find that the sponsor of new emerging technology might choose a research strategy that is too safe i also study the consequences of allowing side payments between generations of consumers and demonstrate that an ex post optimal standardization policy can impair ex ante social welfare

durable goods and product obsolescence the issue of product obsolescence is addressed by examining the optimal sales strategy of a monopolist firm that may introduce an improved version of its current product consumers expectations of a forthcoming product lowers the price that they are willing to pay for the current product because of its loss in value due to obsolescence the new product is characterized by consumers increased willingness to pay and by its competitive interaction with the old product these characteristics affect the tradeoff that the firm makes between the cost of waiting for new product sales versus the cost of cannibalizing these sales we analyze the effect of these characteristics of the new product on the firm s optimal sales strategy we consider the various policy measures available to the firm including limiting initial sales in order to lower cannibalization of the new product buying back the earlier version of the product in order to generate greater demand for the new product and announcements of future product introductions we find that for modest levels of product improvement the firm s optimal policy is to phase out sales of the old product while for large improvements a buy back policy is more profitable lastly we find that the firm is better off if it informs consumers whether a new product is forthcoming

product introduction decisions in a duopoly abstract in this paper we model a dynamic environment with two firms that fight for share of industry sales and profit in a market with constant size they capture share by repeatedly introducing new products price changes from period to period reflecting each firm s learning we formulate the problem as a repeated game where each player s decision at each period is to introduce a new product we find that in general each firm s frequency of product introductions clockspeed in equilibrium decreases as its fixed product introduction cost increases further we find that a higher rate of manufacturing learning results in a higher clockspeed and in a higher market share and also results in significantly worse profits for the competitor the results underscore the importance of manufacturing expertise in a firm s ability to introduce new products

innovations improvements and the optimal adoption of new technologies abstract this paper extends the literature on technology adoption by introducing a distinction between technological breakthroughs innovations and the engineering refinements improvements that follow such a breakthrough firms do not necessarily wait for a future technological breakthrough but instead have an incentive to delay the adoption of a new technology until it is sufficiently advanced we characterize a firm s adoption decision as the solution to a continuous time infinite horizon dynamic programming problem which gives rise to an ordinary differential equation that is highly non linear and does not have a closed form solution we thus employ projection techniques and show how these techniques can be applied to the analysis of optimal stopping problems

technology acquisition with technological progress effects of expectations rivalry and uncertainty abstract we study the effect of expectations regarding technological progress on a firm s technology adoption decision in a duopoly new generation technologies become available one in each period with successive generations representing better and better performance a game theoretic framework is used involving two identical firms competing in the same market over two periods it is shown that expectations retard adoption of the first period technology it is also shown that an asymmetric equilibrium results in higher social welfare and that more investment does not necessarily mean higher levels of welfare uncertainty is shown to have either no effect or a negative effect on the adoption of the current technology when nash equilibrium holds however when subgame perfect equilibrium holds uncertainty has a more complicated effect and numerical examples show that it may even encourage the adoption of the current technology relative to the deterministic equilibrium

heuristics and biases in timing the replacement of durable products the process by which individuals make recurrent decisions about when to replace durable goods is examined two experiments are reported in which subjects play the role of purchasing agents who must repeatedly decide whether to keep a currently owned manufacturing device or replace it with a superior new one given uncertainty about the future performance of new and currently owned machines replacement patterns are compared with those that would be predicted if subjects made decisions as rational economic agents following the principles of optimal replacement theory this comparison reveals a number of systematic departures from optimality that do not vanish with experience among these are a tendency to replace at a slower rate than would be predicted by normative theory and a tendency to weigh opportunity costs arising from obsolescence greater than those arising from product deterioration in addition subjects display a bias against making replacement purchases given short lapses of time since the previous replacement the findings are interpreted in terms of known biases in decision making under uncertainty in dynamic and static settings

technological advancement learning and the adoption of new technology abstract this research focuses attention upon three related issues the persistence of technological progress over time multiple adoption decisions over a long horizon and the impact of production based learning on those decisions we develop a simple economic model for a single product producing firm incorporating continuous technological progress linear product demand linear switching costs and experience based cost reductions a dynamic programming framework is used to evaluate cases where either one or an unlimited number of adoptions are allowed over an infinite horizon both structural and numerical results are presented fundamental results serve to explain several counter intuitive dynamics in the single adoption case faster rates of technological progress as well as growing markets or a steeply sloping demand curve serve to delay adoption while an increased ability to learn may accelerate it when multiple adoptions are allowed the adoption of any particular technology presents a window of opportunity in which future investment will be warranted if for whatever reason this window has passed then maintaining the older technology becomes more attractive than adoption thus seemingly outdated technologies may remain embedded in some settings

innovation and communication signalling with partial disclosure this paper introduces a model of feedback effect equilibrium i e equilibria in which an asymmetrically informed agent is motivated to communicate its privately known attribute but can do so only through channels or signals which convey directly useful information to competing agents this revelation to the competition serves to reduce the value of the private information held by the first agent models of this kind are of obvious relevance to realistic theories of product or financial market disclosure policies of firms patenting and a host of related behavioural and regulatory issues this model is developed in the context of a set of firms engaged in research and development rivalry in which the value of privately held and disclosed information arises from its implications for the likelihood and timing of productive innovation

technology adoption in nonrenewable resource management technological change has played an important role in models of nonrenewable resource management since its presence mitigates the depletion effect on extraction costs over time we formalize the problem of a competitive nonrenewable resource extracting firm faced with the possibility of technology adoption based on a quadratic extraction cost function our results show that the expected net benefits from adoption increase both with the size of the resource stock and with prices a boundary that separates the region where expected net benefits are positive from the one where they are negative is derived

technological expectations and adoption of improved technology abstract attention is focused upon the adoption demand rather than the creation supply of new technology which improves from time to time based on the expected flow of technological progress over which the firm demander has no control it must decide either to adopt the current best available technology or to postpone adoption the distinguishing features of the model are that more than one technological innovation is anticipated and expectations about the likelihood of such innovations are revised as time passes since the last innovation our analysis shows that the firm will adopt the current best practice if its technological lag exceeds a certain threshold moreover as time passes without new technological advances it may become profitable to purchase a technology that has been available even though it was not profitable to do so in the past

portuguese pellets market analysis of the production and utilization constrains abstract as opposite in portugal the wood pellets market is booming in europe in this work possible reasons for this market behavior are foreseen according to the key indicators of biomass availability costs and legal framework two major constrains are found in the portuguese pellets market the first one is the lack of an internal consumption being the market based on exportations the second one is the shortage of raw material mainly due to the competition with the biomass power plants therefore the combination of the biomass power plants with pellet production plants seems to be the best option for the pellets production in the actual portuguese scenario the main constrains for pellets market has been to convince small scale customers that pellets are a good alternative fuel mainly due to the investment needed and the strong competition with natural gas besides some benefits in the acquisition of new equipment for renewable energy they are insufficient to cover the huge discrepancy of the investment in pellets heating however pellets are already economic interesting for large utilizations in order cover a large amount of households additional public support is needed to cover the supplementary costs of the pellets heating systems

sequential investment in renewable energy technologies under policy uncertainty although innovation and support schemes are among the main forces that drive investment in renewable energy re technologies both involve considerable uncertainty we develop a real options framework to analyse the impact of technological policy and electricity price uncertainty on the decision to invest sequentially in successively improved versions of a re technology technological uncertainty is reflected in the random arrival of innovations and policy uncertainty in the likely provision or retraction of a subsidy that takes the form of a fixed premium on top of the electricity price we show that greater likelihood of subsidy retraction provision lowers raises the incentive to invest and by comparing a stepwise to a lumpy investment strategy we show how an embedded option to adopt an improved technology version mitigates the impact of subsidy retraction on investment timing specifically we show how stepwise investment facilitates earlier technology adoption compared to lumpy investment and that under stepwise investment technological uncertainty accelerates technology adoption thus further offsetting the incentive to delay investment in the light of subsidy retraction

optimal technology adoption when the arrival rate of new technologies changes our paper contributes to the literature of technology adoption in most of these models it is assumed that the intensity rate of new arrivals is constant we extend this approach by assuming that after the last technology jump the intensity of a new arrival can change right after the arrival of a new technology the intensity equals a specific value that switches if no new technology arrival has taken place within a certain period after the last technology arrival we look at different scenarios dependent on whether the firm is threatened by a drop in the arrival rate after a certain time period or expects the rate to rise we analyze the effect of a mean preserving spread of the time between two consecutive arrivals on the optimal investment timing and show that larger variance can accelerate investment in case the arrival rate rises while it can decelerate investment in case the arrival rate drops we find that firms often adopt a new technology a time lag after its introduction which is a phenomenon frequently observed in practice regarding a firm s technology releasing strategy we explain why additional uncertainty can stimulate customers buying behavior the optimal adoption timing changes significantly depending on whether the arrival rate is assumed to change or be constant over time adding uncertainty about the length of the time period after which the arrival intensity changes we find that increasing uncertainty accelerates investment a result that is opposite to the standard real options theory

the learning curve and competition abstract the problem of duopoly price competition when there is cost reducing learning is examined in an infinite horizon model with stochastic demand shocks it is shown that in a markov perfect equilibrium the long run outcome depends sensitively on the early history of chance events so that either firm may dominate the market or both firms may share the market asymmetric long term outcomes can arise even when both firms are identical it is also shown that a producer with higher long run costs may eventually dominate the market

the effects of expectations on technology adoption some empirical evidence n rosenberg 1976 argues that in many markets prospective buyers for an innovation are strongly influenced by expectations concerning the timing and significance of future improvements the primary objectives of this article are to provide a model of the innovation decision process of user firms that expect improvements in current best technology and to offer an empirical study that tests the model s predictions among other results the author finds empirical support for rosenberg s argument and demonstrates theoretically that compared to models without technological expectations and learning the optimal decision process is nonmonotonic copyright 1994 by blackwell publishing ltd

on the adoption of new technologies we investigate the incentives of private firms to adopt new technologies econometric investigation is performed on a pooled sample of individual us airline firms over the period 1971 to 1986 for which extensive information on available jet aircraft technology and fleet choice have been recorded given the incidence of successive commercial aircraft innovations and variation in production attributes across firms we are able to consider a wider array of time dependent and time independent adoption influences than in previous firm level studies to the extent that our study provides useful general insights into adoption decisions by firms the results have implications for us global competitiveness policy one key finding is that firms subject to increased product market competition exhibit a higher propensity to adopt technological innovations

uncertainty competition and the adoption of new technology faced with the decision of whether or not to adopt a new technology whose economic value cannot be gauged with certainty the manager of the firm may elect to decrease the uncertainty by sequentially gathering information at a unit cost of c 0 updating his prior beliefs in a bayesian manner uncertainty regarding the actions of a competitor however cannot be reduced our model allows a manager to account for potential competition either substitute or complementary by inclusion of strategic considerations modelled in a game theoretic setting we show that the firm s best response mapping satisfies a dynamic programming recursion even when the one period reward function is unbounded providing management with a familiar tool to solve its problem best response behavior is characterized by a monotone sequence of pairs of threshold numbers which give rise to a cone shaped continuation region the continuation region is shown to shift up down with increases in the expected level of substitute complementary competition making the firm less more likely to adopt the innovation finally the existence of a nash equilibrium in cone shaped strategies is established

new product strategy and industry clockspeed we study how industry clockspeed internal firm factors such as product development production and inventory costs and competitive factors determine a firm s optimal new product introduction timing and product quality decisions we explicitly model market demand uncertainty a firm s internal cost structure and competition using an infinite horizon markov decision process based on a large scale numerical analysis we find that more frequent new product introductions are optimal under faster clockspeed conditions in addition we find that a firm s optimal product quality decision is governed by a firm s relative costs of introducing new products with incremental versus more substantial improvements we show that a time pacing product introduction strategy results in a production policy with a simple base stock form and performs well relative to the optimal policy our results thus provide analytical support for the managerial belief that industry clockspeed and time to market are closely related

adoption and diffusion of an innovation of uncertain profitability the argument has frequently been made that the pattern of diffusion associated with most new innovations will typically have certain characteristics a diffusion curve for an innovation is usually defined as the proportion of its potential users who have already adopted as a function of time measured from the first adoption many empirical studies by both economists and other social scientists have shown that diffusion curves nearly always have two distinct characteristics i they are s shaped the proportion adopted is an increasing function of time which is initially convex but eventually becomes concave and ii they tend to be right hand skewed the inflection point occurs at a time corresponding to a proportion adopted which is less than one half so that the function is concave over the greatest amount of time in fact this skewing is occasionally severe enough to make the diffusion curve appear concave everywhere the focus of most empirical studies of innovation diffusion has centered on identification of either the major determinants of the speed of diffusion or the characteristics of firms which determine how long they delay adoption the seminal contributions are griliches 6 study of hybrid corn and mansfield s 121 study of 12 industrial innovations these studies and most of the similar ones following conclude that diffusion is faster for innovations with higher profitability and that large firms tend to be the earliest adopters some studies e g mansfield 121 herregat 71 have attempted to ascertain

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

exploring links between innovation and diffusion adoption of nox control technologies at us coal fired power plants while many studies have looked at innovation and adoption of technologies separately the two processes are linked advances and expected advances in a single technology should affect both its adoption rate and the adoption of alternative technologies this paper combines plant level data on us coal fired electric power plants with patent data pertaining to nox pollution control techniques to study this link as in other studies of environmental technologies the effect of other explanatory variables is dominated by the effect of environmental regulations demonstrating that the mere presence of environmental technologies is not enough to encourage its usage nonetheless i do find that technological advances are important for the adoption of existing combustion modification technologies however these advances are less important for the adoption of newer post combustion control techniques which are adopted only when needed to comply with the strictest emission limits

invest or exit optimal decisions in the face of a declining profit stream even in the face of deteriorating and highly volatile demand firms often invest in rather than discard aging technologies to study this phenomenon we model the firm s profit stream as a brownian motion with negative drift at each point in time the firm can continue operations or it can stop and exit the project in addition there is a one time option to make an investment that boosts the project s profit rate using stochastic analysis we show that the optimal policy always exists and that it is characterized by three thresholds there are investment and exit thresholds before investment and there is a threshold for exit after investment we also effect a comparative statics analysis of the thresholds with respect to the drift and the volatility of the brownian motion when the profit boost upon investment is sufficiently large we find a novel result the investment threshold decreases in volatility

the role of technological expectations in a mixed model of international diffusion of process innovations the case of open end spinning rotors abstract in the years following the introduction of open end rotors a major innovation in cotton spinning technological change in spinning has been characterized by fast rates of introduction of incremental innovations this has made possible considerable improvements in the quality of products as well as reductions in the cost of spinning this case seems especially appropriate for analysing the effects of incremental innovations on the rate of diffusion one the one hand expectations of continuing incremental change may have actually slowed the diffusion of open end rotors contrarily increased profitability from their adoption may have reinforced the rate of diffusion a mixed model of diffusion one that is able to evaluate the role of supply forces such as the introduction of incremental innovations and at the same time the role of bounded rationality and learning by imitating has been developed it draws on the behavioural literature and upon the epidemic approach due to mansfield results of an econometric test on international data available for 26 countries confirm that the rate of introduction of incremental innovations has reduced the rate of diffusion this is especially the case in countries where the technological change in spinning was originated and consequently technological expectations were higher

information and profitability estimates modelling the firm s decision to adopt a new technology this paper uses a response surface based on catastrophe theory to examine the interaction of information and profitability estimates on the firm s adoption of a new technology or innovation as such the paper builds on the conceptual ideas behind mccardle s 1985 work an illustrative example using simulated data is presented to indicate how one might operationalize the key constructs for the purpose of estimating the model

reputations in the adoption of a new technology abstract this paper studies the effects of uncertainty on the timing of adoption of a new technology in a duopoly firms are uncertain of the innovative capabilities of their rivals and about the profitability of adoption these features lead to a richer and in some respects more plausible theory of adoption in which rents from delayed adoption are always realized and returns are not equalized across adoption times

complementarity and cumulative learning effects in early diffusion of multiple technologies this paper concentrates on the contextual diffusion of flexible automation production and design engineering technologies in the italian metalworking industry the authors use duration data analysis with explanatory covariates to point out the role of complementarities between the technologies examined and learning by using effects matured with experience of previously available technologies in shaping diffusion paths the impact of industry and plant specific control variables as well as that of the stock of previous adopters on adoption probabilities is also taken into account in addition the authors analyze duration versus calendar time dependence of adoption probabilities copyright 1995 by blackwell publishing ltd

the net present value method versus the option value of waiting a note on farzin huisman and kort 1998 abstract using the tools of real options theory farzin huisman and kort 1998 investigate the optimal timing of technology adoption in a model in which there is ongoing technological progress and the firm s investment decision is irreversible when the firm can switch technologies n farzin et al 1998 obtain the surprising result that the criterion for adopting a new technology derived from real options theory coincides with the net present value criterion for all but the last switch this note points out a mistake in farzin et al s 1998 derivations that leads to the above result we show that compared to the net present value approach the firm will defer the adoption of a new technology when it takes the option value of waiting into account

supply and demand elasticities in the u s ethanol fuel market abstract the market for ethanol has grown from approximately 1 2 billion gallons in 1997 to almost 5 billion gallons in 2006 with the huge increase in ethanol demand in recent years the growth in derived demand for corn has driven up many food prices this paper uses monthly data from 1997 2006 to estimate the market supply and demand for ethanol at the national level the simultaneous determination of the supply and demand curves using two stage least squares allows for the calculation of supply and demand side elasticities which are important results in light of the tremendous growth in this market and recent legislation concerning ethanol

timing of investment under technological and revenue related uncertainties the effects of two forms of uncertainty on the timing of irreversible investment are considered technological uncertainty is modeled as a poisson arrival process that reduces the cost of investment while revenue uncertainty is modeled as a diffusion process technological uncertainty has no effect on the optimal investment policy when revenue uncertainty is absent however when combined with revenue uncertainty increased technological uncertainty makes investment less attractive relative to waiting the paper also makes a more general point in clarifying the difference in how diffusion type of uncertainty and unidirectional stochastic progress affect investment timing

uncertain search a model of search among technologies of uncertain values in the standard search problem there is an infinite pool of items whose distribution of values is known a decision maker draws an item from the pool observes its value and decides whether to keep it or to draw another item he can keep only one item and he seeks the item with the largest value in the standard uncertainty resolution problem there is only one item and the value of that item remains uncertain even after it is drawn the decision maker sequentially collects observations on the value of the item and decides whether to keep the item discard the item or take another observation uncertain search marries the sequential drawing from a pool of items from the search literature with the unknown value of a drawn item from the uncertainty resolution literature presented in the context of technology adoption it considers drawing from a pool of new technologies whose values remain unknown even after being drawn the decision maker sequentially purchases information in order to bayesianly update

an evolutionary pattern of innovation diffusion the case of flexible automation abstract the aim of this paper is to provide evidence supporting an evolutionary model of the process of innovation diffusion relying on an extensive field study the paper analyses the pattern of adoption of the entire set of innovations deriving from the flexible automation paradigm on the part of a large sample of italian metalworking firms owing to the relevance of the technology examined and to the size of the sample the case illustrates quite representatively the dynamics of the early stage of development of radical and complex innovations the main results of the paper confirm the importance of firm size and market structure to explain the characteristics of the innovation diffusion process at the same time they emphasize that the localized search procedures on the part of potential users involve a step by step approach to adoption namely the technological and organizational profile of firms turns out to play a decisive role in favouring diffusion moreover empirical support is provided for the existence of persistent market disequilibria along the diffusion paths witnessed by the extent of the retrofitting phenomenon

eating your own lunch protection through preemption recent discussions of management practices among successful high technology companies suggest that one key strategy for success is to eat your own lunch before someone else does the implication is that in intensely competitive or hypercompetitive markets firms with a leading position should aggressively cannibalize their own current advantages with next generation advantages before competitors step in to steal the market given the pace of technological and other types of change such strategy often requires creating next generation advantages while the current advantages are still profitable that is trading current profits for future market leadership we capture the tradeoff between a market leader s willingness to reap profits with its current set of advantages and its desire to maintain market leadership by investing in the next generation using a competitive model that determines the equilibrium launch time of a next generation advantage we find that in absence of lower launch costs for an

adoption of competing inventions by united states steel producers a hstract this research investigates innovative behavior in the u s steel industry under the assumption that basic oxygen and large electric furnaces are competing technologies the empirical model of innovation is based on recent theoretical research the coefficients are estimated by a seemingly unrelated tobit approach the research finds innovation is strongly influenced by a demonstration effect adoption is also influenced by potential cost savings and technical progress there is no evidence that large u s steel producers modernized more slowly than their smaller rivals the large electric furnace becomes sufficiently attractive by 1980 that firms choose not to adopt basic oxygen

innovation firm size and growth in a centralized organization the optimal innovation firm size and growth are derived for a centrally controlled firm in which only the entrepreneur evaluates and restores current projects or evaluates and adopts new projects current projects are subject to failure due to entry and possible obsolescence while new projects may not be successful the optimal allocation of attention implies bounds on firm size and that the rate of innovation depends not only on monopoly profits firm size and technological opportunity but also on the probability of obsolescence the effects of monopoly power and firm size on innovation also depend on the degree of obsolescence

technology adoption with uncertain future costs and quality in this paper we study the impact of uncertainty about future innovations in quality and costs on consumers technology adoption decisions we model the uncertainty in the technology s quality and costs as a markov process and consider three models of the adoption decision the first model assumes that consumers do a simple net present value npv analysis that compares the npv of adopting to that of not adopting without considering the possibility of waiting the second model is a stochastic dynamic program that considers the possibility of waiting and views the adoption decision as a one time event i e the consumer will only make a single purchase the only question is when the third model allows repeat purchases so the consumer may upgrade by purchasing new versions of the technology whenever it suits her we study structural properties of these models e g the following what changes in qualities and costs will make the consumer better off what changes will encourage adoption we will see that the simple npv and single purchase model have many intuitive properties with the right notion of improvements and reasonable assumptions about the technology changes we find that improvements in the technology make the consumer better off and encourage adoption here improvements are defined using a partial order on quality and cost pairs the results are more complicated in the repeat purchase model under the same conditions on technology changes technology improvements will make the consumer better off however except for special cases of transitions these improvements may make the consumer better off and discourage adoption

optimizing product launches in the presence of strategic consumers a technology firm launches newer generations of a given product over time at any moment the firm decides whether to release a new version of the product that captures the current technology level at the expense of a fixed launch cost consumers are forward looking and purchase newer models only when it maximizes their own future discounted surpluses we start by assuming that consumers have a common valuation for the product and consider two product launch settings in the first setting the firm does not announce future release technologies and the equilibrium of the game is to release new versions cyclically with a constant level of technology improvement that is optimal for the firm in the second setting the firm is able to precommit to a schedule of technology releases and the optimal policy generally consists of alternating minor and major technology launch cycles we verify that the difference in profits between the commitment and no commitment scenarios can be significant varying from 4 to 12

managing a product family under stochastic technological changes abstract this paper characterize a decision framework by which a firm can manage generational product replacements under stochastic technological changes first we characterize an optimal threshold based product replacement policy that maximizes the firm s expected total profit for a finite planning horizon with this policy the firm should optimally replace its current product when the performance gap of the product is above a threshold upon each product replacement we also show that the firm should adopt the latest technology for the new product second using stochastic ordering concepts we quantify the negative impact from the accelerated technological changes on the expected total profit finally we provide an analytical example based on a consumer choice model and characterize a technology follower s joint product replacement and pricing decisions upon the arrival of each innovation from a technology leader

optimal regime switching under risk aversion and uncertainty abstract technology adoption is key for corporate strategy often determining the success or failure of a company as a whole however risk aversion often raises the reluctance to make a timely technology switch particularly when this entails the abandonment of an existing market regime and entry in a new one consequently which strategy is most suitable and the optimal timing of regime switch depends not only on market factors such as the definition of the market regimes as well as economic and technological uncertainty but also on attitudes towards risk therefore we develop a utility based regime switching framework for evaluating different technology adoption strategies under price and technological uncertainty we assume that a decisionmaker may invest in each technology that becomes available compulsive or delay investment until a new technology arrives and then invest in either the older laggard or the newer technology leapfrog our results indicate that if market regimes are asymmetric then greater risk aversion and price uncertainty in a new regime may accelerate regime switching in addition the feasibility of a laggard strategy decreases increases as price uncertainty in an existing new regime increases finally although risk aversion typically favours a compulsive and a laggard strategy a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high

a high tech product market share model with customer expectations in a product category based on dynamic technology new products enter the market in rapid succession and the competitive situation changes almost daily because technological features of available products tend to improve while prices tend to decline customers develop expectations that may influence their purchase decisions we model the impact of customer expectations regarding price and technology on product market share in the personal computer industry finding significant nonlinear effects of both these effects are observed when actual product price and or technology differ from expectations by a threshold amount our results suggest implementable implications for high tech product managers in particular price and technology should meet but not exceed customer expectations this does not mean that managers should strive for mediocrity rather continuous improvement should be implemented so that product development efforts lead customer expectations

farm acreage shocks and crop prices an svar approach to understanding the impacts of biofuels the last 10 years have seen tremendous expansion in biofuels production particularly in corn ethanol in the united states at the same time that commodity prices e g corn have experienced significant spikes while supporters claim that biofuels are renewable and carbon friendly concerns have been raised about their impacts on land use and food prices this paper analyzes how us crop prices have responded to shocks in acreage supply these shocks can be thought of as a shock to the residual supply of corn for food using a structural vector auto regression framework we examine shocks to a crop s own acreage and to total cropland this allows us to estimate the effect of dedicating cropland or non crop farmlands to biofuels feedstock production a negative shock in own acreage leads to an increase in price for soybeans and corn our calculations show that increased corn ethanol production during the boom production year 2006 2007 explains approximately 27 of the experienced corn price rise

a dynamic it adoption model for the soho market pc generational decisions with technological expectations thesmall office home office soho professionals comprise the fastest growing segment in the labor force today typically being a one person business based at home soho owners mostly rely on office information technology to single handedly run their entire operation despite the segment s ostensibly growing dependence and influence on the information technology it industry still very little is known about the dynamics between soho and it products with the purpose of addressing this void we investigate the soho professionals adoption patterns of multigenerational it products accordingly we develop and empirically estimate an individual soho levelinitial andrepeat purchase logit model that captures the procurement patterns for successive generations of technological products namely the pc category specifically we find that soho professionals procurement choices are influenced by a number of salient dimensions i e income performance price interpurchase time network externalities furthermore some soho owners are found to have a preference for a future expected generation over a currently available one which is explained via their business dispositions i e technology orientation result orientation search orientation toward accepting technological incertitude

a unified theory and test of extended immediate deterrence we present a unified theory and test of extended immediate deterrence unified in the sense that we employ our theoretical deterrence model as our statistical model in the empirical analysis the theoretical model is a straightforward formalization of the deterrence logic in huth 1988 and huth and russett 1984 coupled with private information concerning utilities our statistical analysis suggests that the attacker and defender s decisions are influenced by the balance of forces nuclear weapons defender protege military alliances arms transfers and trade as well as the regime types of those involved many of these findings contradict previous research by huth 1988 and huth and russett 1988 we find that many of the variables involved in the deterrence calculus are nonmonotonically linked to the probability of deterrence success or war we illustrate the results with case studies of the soviet japanese dispute over manchukuo 1937 1938 and the berlin blockade 1948

competing technologies and market dominance standard battles in the local area networking industry the rise of fast ethernet as the dominant standard for high speed connection in the local area networking industry is chosen to study the interaction between increasing returns to adoption and technical change in innovation diffusion contrary to most of the empirical papers on diffusion with increasing returns which study competition between an entrenched technology and a new competitor the focus is on the case in which several and different versions of a new technology are competing at the same time for market dominance within this context this article studies under which conditions an early technology may fail to capitalise on its initial time advantage and a new version without a clear early lead may become dominant in particular we will consider a case in which the initial time advantage is made ineffective by consistently adverse technological expectations then we analyse how the arrival on the market of different categories of buyers sensitive to specific applications further contribute to weaken the early leader and strengthen a competing version this is more likely to occur when buyers are highly familiar with the characteristics of that specific version copyright 2008 oxford university press

the wood pellet market in austria a structural market model analysis abstract eu bioenergy policies and oil price hikes have resulted in a significant increase of installed pellet boilers for residential heating hence european demand for wood pellets has been growing faster and more steadily than supply leading to rising market prices in recent years this article presents an econometric analysis of demand and supply of wood pellets in the residential heating sector in austria one of the most dynamic markets for residential pellets annual and monthly time series data between 2000 and 2014 are used in a two stage least squares 2sls regression to estimate supply and demand elasticities of wood pellets in all model specifications pellets demand is found to be inelastic from 0 66 to 0 76 and pellets supply unit elastic from 1 03 to 1 18 thus consumers are highly exposed to price changes resulting from supply shocks policies which support investments in pellet boilers will shift the demand of wood pellets and likely leading to higher prices for consumers

information acquisition and the adoption of new technology the profitability of a new technology is rarely known with certainty at its announcement date consequently prior to making an adoption decision it behooves the firm considering the adoption of this innovation to reduce the level of uncertainty associated with its profitability the firm accomplishes this by sequentially gathering information updating its prior estimate of profitability in a bayesian manner quantifying the uncertainty regarding the innovation permits application of dynamic programming techniques criteria are derived which tell the firm when to stop collecting information and make the adoption decision it will be shown that it is optimal for the firm to continue to collect information until its estimate of profitability crosses one of two thresholds upon crossing the upper threshold the firm adopts the technology whereas the firm rejects the technology if the lower threshold is crossed the model predicts that even the manager who behaves optimally will occasionally adopt unprofitable technologies and reject profitable ones

market structure and innovation a survey economics we all recite deals with allocation of limited resources towards satisfaction of unlimited wants resources are typically identified as land labor and capital plus a technology that determines their transformation into consumer goods disparity between the available goods and services and the desired gives rise to scarcity and the question of what how and for whom to produce the focus then shifts to description and evaluation of alternative resource allocation mechanisms for making the choices the pareto criterion by which an allocation of resources is deemed efficient if any reallocation improving the position of some individual worsens the position of others is a commonly employed gauge of a mechanism s performance in the absence of externalities increasing returns to scale and uncertainty a perfectly competitive market system yields a pareto optimal allocation of resources this underlies the view that individual self interest is compatible with society s interest the further conclusion that pareto optimality may not be achieved via the market system in the presence of monopoly elements provides an economic rationale for antitrust laws the objective of a resource allocation mechanism appears to be according to the analysis described above to make the best of available resources the alternative objective of relaxing constraints through expanding the resource base or developing new technology seems to be beyond its scope thus until rather recently technical advance had been regarded in the mainstream of economic theory as unmotivated by the quest for profits and substantially unaffected by resource allocation instead as j schmookler observed technology had been viewed as a parameter like the weather affecting the outcome of resource allocations but itself unaffected by them 84 1965 evidence that technological progress has significantly contributed to growth in productivity together with a substantial increase in research and development activity largely financed by government and carried out by industry see f machlup 51 1962 may have spurred reconsideration of this view once technical advance is regarded as an economic variable it is natural to in

the diffusion of new technology and the market for an innovation this article shows that the diffusion of a capital embodied process innovation results from a pattern of decreasing incremental benefits and adoption costs for later adoptions strategic behavior is inessential to this finding we develop a method for comparing diffusion rates for different market structures in the capital equipment market we consider cases with market power on the seller s side of the market and on the buyers side of the market a case with no market power and the welfare optimal case we find that a joint venture adopts an innovation more slowly than other market regimes to protect existing capital investments and that the adoption rate is slower than is socially optimal a monopoly supplier on the other hand adopts at a rate faster than is socially optimal this result is usually also the case when there is no market power finally we show that the monopoly supplier accelerates adoptions faster than in the case where there is no market power but retards later adoptions market power thus makes a difference in diffusion rates and on which side of the market that power lies makes a considerable difference

technology choice and timing with positive network effects abstract when two competing and incompatible products coexist in a market potential users face a choice between the two products and the alternative of deferring the decision this paper examines the choice between the two substitutes where each one is subject to a positive network effect that is a user of one of the products experiences an increase in the value for each additional person using the same product we examine this buy or wait problem either for an individual or a manager making the investment on behalf of a firm by formulating and analyzing a decision theoretic model to model the stochastic evolution of market share we build on the generalized polya urn of arthur et al arthur w b ermoliev y m kaniovski y m 1987 path dependent processes and the emergence of macro structure european journal of operational research 30 3 294 303 allowing for composition of the market to affect not just the relative market shares but also the absolute growth rate of the market we show that the optimal strategy is defined by a pair of market penetration thresholds that depend on the market composition looking at the effect of the network effects on the optimal strategy we find that more pronounced network effects can either raise or lower the penetration thresholds

capacity expansion under stochastic demands we consider the problem of optimally meeting a stochastically growing demand for capacity over an infinite horizon under the assumption that demand for product follows either a nonlinear brownian motion or a non markovian birth and death process we show that this stochastic problem can be transformed into an equivalent deterministic problem consistent with earlier work by a manne the equivalent problem is formed by replacing the stochastic demand by its deterministic trend and discounting all costs by a new interest rate that is smaller than the original in approximate proportion to the uncertainty in the demand

optimal timing of technology adoption abstract in a dynamic programming framework this paper investigates the optimal timing of technology adoption by a competitive firm when technology choice is irreversible and the firm faces a stochastic innovation process with uncertainties about both the speed of the arrival and the degree of improvement of new technologies a numerical example illustrates how the optimal timing decision is affected by changes in parameter values reflecting market conditions the firm s initial technological attributes and the characteristics of the stochastic innovation process some of these effects turn out to be in sharp contrast to common intuition contrasting the optimal decision rule derived here with the rule obtained under the net present value shows that the former implies a slower pace of adoption than implied by the latter the optimal decision rule is generalized for the case of multiple technology switches and it is shown that for all the switching decisions except the last one the optimal rule satisfies the net present value criterion

models of technology diffusion abstract the literature on new technology diffusion is vast and it spills over many conventional disciplinary boundaries this paper surveys the literature by focusing on alternative explanations of the dominant stylized fact that the usage of new technologies over time typically follows an s curve the most commonly found model which is used to account for this model is the so called epidemic model which builds on the premise that what limits the speed of usage is the lack of information available about the new technology how to use it and what it does the leading alternate model is often called the probit model which follows from the premise that different firms with different goals and abilities are likely to want to adopt the new technology at different times in this model diffusion occurs as firms of different types gradually adopt it there are actually many ways to generate an s curve and the third class of models which we examine are models of density dependence popularized by population ecologists in these models the twin forces of legitimation and competition help to establish new technologies and then ultimately limit their take up finally we look at models in which the initial choice between different variants of the new technology affect the subsequent diffusion speed of the chosen technology such models often rely on information cascades which drive herd like adoption behaviour when a particular variant is finally selected

on the diffusion of new technology a game theoretic approach this paper is an attempt at a rigorous albeit not exceedingly general analysis of the diffusion of new technology in particular consider an industry composed of two firms each using the current best practice technology the firms are assumed to be operating at nash equilibrium output levels generating a market price given demand and profit allocations when a cost reducing innovation is announced each firm must determine when if ever to adopt it based in part upon the discounted cost of implementing the new technology and in part upon the behavior of the rival firm if either firm adopts before the other it can expect to make substantial profits at the expense of the other firm on the other hand the discounted sum of purchase price and adjustment costs may decline with the lengthening of the adjustment period as various quasi fixed factors become more easily variable therefore although waiting costs the firm more in terms of foregone profits it may save money on the cost of purchasing the new technology thus the firm must weigh the costs and benefits of delaying adoption as well as take account of its rival s strategic behavior

crisis bargaining escalation and mad although incomplete information is recognized to be an essential feature of crises game theoretic formulations have not generally modeled this explicitly this paper models a mutually assured destruction mad crisis as a game of sequential bargaining with incomplete information sufficiently simple that its equibria may be found these provide better game theoretic foundations for the notions of resolve and critical risk and their role in crises and also make it possible to compare the bargaining dynamics of this model with those of descriptively richer but incompletely specified models revealing several inconsistencies several analyses of mad conclude that the state with the greatest resolve in this contest of resolve will prevail many models based on critical risks suggest that a state is less likely to escalate the greater its adversary s resolve in our model however the state with the weakest resolve sometimes prevails and some states prove more likely to escalate if their adversaries resolve is greater

endogenous diffusion of technology abstract this paper presents a positive theory of diffusion of technology it examines a two period model strategic firms are confronted by a process technology with an uncertain reduction in marginal costs the uncertainty is automatically resolved between the two periods adoption in the first period yields a leadership advantage relative to firms that do not adopt while simultaneous adoption by firms results in a cournot equilibrium the firms strategies are both production quantities and adoption timings these decisions are made at the same time thus firms face a trade off between early adoption and possibly reaping first mover advantages on one hand and deferring the adoption decision until after all the uncertainty is resolved but face the possibiity of being a follower in the market interestingly an endogenously determined diffusion rate is obtained as a pure strategy nash equilibrium of this game this means that while adoption and diffusion of technology results with probability one diffusion of a bad innovation is also possible it is also shown that in a market with one large firm and a nonatomic continuum of small firms there is a unique nash equilibrium in which the large firm adopts first and is a stackelberg leader and all the small firms decide whether or not to adopt after the uncertainty is resolved the implication of this result is simply that the diffusion of technology is to some extent determined by the relative size of firms in the industry

on optimal replacement thresholds with technological expectations abstract y balcer and s a lippman 1984 j econ theory34 292 318 develop a model to analyze the buy or wait problem under technological change they show that this dynamic problem has a threshold solution if the difference between the best available technology and that currently held exceeds a certain threshold then buy they also claim that the threshold is increasing in the discovery potential that is the faster the technology is changing the higher the threshold in this note we point out an error in the proof of that theorem and further we provide a numerical counterexample to the claim journal of economic literature classification numbers o32 o33

adoption externalities as public goods abstract a public good problem arises naturally in situations characterized by positive externalities or negative externalities for positive externalities agents furnish a public good by taking an action similarly for negative externalities agents furnish a public good by not taking an action we examine these externalities in a binary choice problem i e adoption externalities in each case there is a potential role for government intervention even when equilibrium transfers are not allowed since one equilibrium pareto dominates all others we analyze the positive and normative features of equilibria in these models and we explore the possibility of useful government intervention

bad eggs learning by doing and the choice of technology we model long run economic development through technology adoption under scientific uncertainty about environmental effects there are four possible long run equilibria in a socially planned economy high growth adopt rapidly but abandon damaging technologies once revealed ddt cfcs cautious brake the introduction of new technologies to avoid mistakes genetically modified organisms no growth halt technological progress to preserve secondary knowledge and collapse adopt rapidly without ever abandoning damaging technologies in the base parameterization a short sighted social planner chooses the cautious strategy a far sighted planner chooses the high growth strategy unless damages are irreversible in which case the cautious strategy again dominates regulatory options in the market economy are investigated pollution taxes do not affect the firm s level of precaution if they can only be applied after the adopting firm has reaped the benefits however they do encourage the abandonment of damaging technologies liability rules do affect precaution but may lead to excessive caution or even a no growth trap

rational deterrence and crisis stability this paper presents a new game theoretic model of nuclear crises that maintains consistency with the usual chicken and prisoner s dilemma metaphors within a repeated continuous game framework it establishes the existence of totally credible because always optimal deterrence strategies that are the expression of threats of graduated retaliations in response to an encroachment of status quo drawing a careful distinction between the three fundamental kinds of nuclear threats the risk of losing control the graduated response and the massive retaliation the theory predicts that a hawkish stand in response to aggression by an approximately equal nuclear opponent leads to an almost certain nuclear disaster a completely dovish approach invites exploitation by a hawkish opponent who can maneuver a partial victory a successful policy involves retaliations that are restrained at first but that become increasingly firm if the opponent refuses to compromise a firm and restrained strategy forces a rational opponent into a similar behavior the result is a safe return to the status quo ante i e crisis stability the theory is illustrated by a numerical simulation of the cuban missile crisis showing the outcomes of various strategies available to the united states and the soviet union the simulation and the theory suggest a reformulation of nuclear strategies the key to credibility and crisis stability lies in the threat to exact costs that cancel any prior benefit from aggression not in the promise to impose equal or greater punishments

identifying supply and demand elasticities of agricultural commodities implications for the us ethanol mandate we present a new framework to identify supply elasticities of storable commodities where past shocks are used as exogenous price shifters in the agricultural context past yield shocks change inventory levels and futures prices of agricultural commodities we use our estimated elasticities to evaluate the impact of the 2009 renewable fuel standard on commodity prices quantities and food consumers surplus for the four basic staples corn rice soybeans and wheat prices increase 20 per cent if one third of commodities used to produce ethanol are recycled as feedstock with a positively skewed 95 percent confidence interval that ranges from 14 to 35 per cent jel q11 q16 q42 q48

the effect of incomplete information about future technological opportunities on pre emption abstract in this paper we model the strategic choice of investment by an incumbent firm facing competition from a potential entrant and the uncertain prospect of technological development the model presented extends the basic dixit model into two directions it allows for production over two periods and introduces uncertainty about the technology available in the second we show that the incumbent does not necessarily prefer to pre commit irreversibility of investment creates in fact an option value of retaining flexibility and the strategic gains from pre commitment must be compared with the option value for strategic investment to be chosen the strategic use of investment can also explain the observed inertia of incumbent firms in the adoption of new technologies compared to new entrant firms

technology adoption with finite horizons the purpose of this paper is to study the relation between the age of an agent and her decisions about adopting new technologies to this end i analyze the optimal sequence of technology upgrades by an agent who lives for a finite period of time other characteristics of the environment are the existence of technology specific learning by doing technology growth and adoption costs a finite planning horizon implies that the technology adoption problem is non stationary and the frequency of adoptions changes over time this paper provides results for the computation of the optimal plan and explores numerically the life cycle pattern of technology switches adoptions may become more frequent as the agent grows older however the sign of the association between age and the adoption of new technologies is sensitive to variation in parameters this is not at odds with the findings of recent empirical studies

a dynamic game of r and d patent protection and competitive behavior a theory of dynamic optimal resource allocation to r and d in an n firm industry is developed using differential games this technique represents a synthesis of the analytic methods previously applied to the problem static game theory and optimal control the use of particular functional forms allows the computation and detailed discussion of the nash equilibrium in investment rules this paper addresses the problem of resource allocation to research and development among the important issues that a firm engaging in r and d must evaluate are uncertainty regarding the feasibility and profitability of a particular innovation the possibility of a protracted development period the possibility that a rival firm may innovate first capturing either a patent or a significant share of the new market the possibility that a rival firm may imitate the innovation and appropriate some of the profits in the new market in what follows we will develop a theory of optimal resource allocation to research and development which incorporates the aspects of r and d enumerated above we will use a dynamic game theoretic analysis determining the nash equilibrium strategies for n identical firms the availability of perfect patent protection is shown to accelerate development of the innovation and the effect of increasing rivalry is addressed the impact of increasing rivalry on nash equilibrium investment in r and d depends upon the degree of appropriability of rewards if patent protection is perfect then increasing the number of nash rivals results in increased r and d effort however when imitation is rewarded the opposite may be true finally some notions of competitive and perfectly competitive equilibrium are examined in the context of the model developed below

managing green revolution technology an analysis of a differential practice combination in swaziland the process of technology adoption in agriculture is not well understood numerous studies have attempted to explain the adoption process but their shortcomings have resulted in limited success almost all technological adoption studies have characterized adoption as a discrete phenomenon adopters versus nonadopters rather than a continuum that reflects the intensity of use of various technologies only a few studies have used continuous adoption variables 2 most studies view technological practices in isolation from one another that is interdependencies among these practices have largely been ignored 3 some authors have hypothesized a specific type of interdependency referred to as sequential adoption behavior 4 the sequential adoption process is one in which one modern input is adopted and then after a lag another input is adopted for example it is best to adopt modern varieties and fertilizer together because of the interactions among practices however it is argued that farmers may first adopt modern varieties and 2 3 years later adopt fertilizer h d leathers and m smale argue that the empirical evidence shows that for the most part farmers choose to adopt inputs sequentially adopting initially only part of the package and subsequently adding components over time d byerlee and e h de polanco found that the farmers in the mexican alliplano have adopted a package of biochem

modeling technology adoption as an irreversible investment under uncertainty the case of the turkish electricity supply industry this paper studies energy conversion technology adoption in the electricity supply sector from the perspective of irreversible investments under uncertainty and with a particular interest in environmental sustainability we develop a dynamic technology adoption model that is firmly rooted in economic theory and that takes important determinants of optimal investment in available technologies e g life cycle capital and operation cost explicitly into account uncertainty is introduced for the demand for peak load capacity unit generation costs and for the average electricity price we test the model empirically by applying it to data for the turkish power supply industry the model guided optimal investment schedule based on net present value considerations exhibits significant deviations from the actual investment outcome we find that the increased adoption of natural gas fired power generation technologies in turkey in recent years while contributing to environmental sustainability has had doubtful merits from an investor s perspective