Technological expectations and adoption of improved technology (Q800804)

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.