Effects of endogenous depreciation on the optimal timing of technology adoption

Abstract

In this thesis, we use two stage optimal control techniques to analyze optimal timing of technology adoption under embodied technical change taking into account the endogenous nature of depreciation. We show that a more efficient maintenance service reducing the depreciation rate postpones the optimal timing of technology adoption. In this respect, we study to what extent can maintenance of the existing capital stock be a substitute for adoption of new technologies.