Technology choice and saving in the presence of a fixed adoption cost

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)40-48
Journal / PublicationReview of Development Economics
Volume5
Issue number1
Publication statusPublished - 2001
Externally publishedYes

Abstract

This paper explores the relationship between technology choice and saving in the presence of fixed costs of technology adoption. While richer agents adopt the more productive technology immediately it is available, poorer agents optimally choose to wait before switching to the better technology. In the interim, they save more than others and more than in the absence of the prospect of switching to the new technology. The paper thus provides an explanation for the phenomenon that the saving rate and the growth rate of output increase over time in the transition.