Optimal pattern of technology adoptions under embodiment: a multi-stage optimal control approach

Date
2011
Authors
Saglam, C.
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Source Title
Optimal Control Applications and Methods
Print ISSN
0143-2087
Electronic ISSN
1099-1514
Publisher
John Wiley & Sons Ltd.
Volume
32
Issue
5
Pages
574 - 586
Language
English
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Abstract

By deriving the necessary conditions for a multi-stage optimal control problem where the endogenous switching instants appear as an argument of the state equation, we analyze the optimal pattern of technology adoptions under embodiment with a finite planning horizon. We show that the optimal pattern of technology adoptions depends crucially on how the growth rate advantage compares to the adjustment and the obsolescence costs inherent to embodiment. We obtain non-stationary lifetimes for the adopted technologies due to finite planning horizon. We analyze numerically the effects of planning horizon, speed of adjustment to the new technology, growth rate of technology and the impatience rate on the optimal pattern. Copyright © 2010 John Wiley & Sons, Ltd.

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