Learning-by-doing and the choice of technology: The role of patience (Q5952424)

The incentives to adopt a new technology depend on the firm's ability to use the previous generation of technology. This ability may depend on the experience the firm has had with the technology, i.e., on the amount of learning-by-doing as a force for sustained growth. A firm may adopt the new technology and eventually overtake other firm, which was initially more advanced. The authors modify Jovanovic and Nyarko's model of learning-by-doing by including forward looking firms [\textit{B. Jovanovic} and \textit{Y. Nyarko}, Econometrica 64, 1299-1310 (1996; Zbl 0862.90023)]. A forward-looking firm maximizes the present value of the infinite stream of payoffs with a discount factor \(\beta\). The authors show that overtaking can occur for small positive values of factor \(\beta\). However, if the firms are sufficiently patient, overtaking cannot occur. The authors also show that a positive \(\beta\) typically increases the set of precision levels at which upgrading is optimal. In this case, a forward looking firm upgrades more frequently than a myopic firm.