Machine replacement, Network Externalities and Investment Cycles

Juan M. Ruiz ()

Macroeconomics from EconWPA

Abstract: This paper presents a model where agents decide on the timing of replacement of ageing machines. The optimal replacement policy for an agent is influenced by other agents' decisions because the productivity of a particular vintage displays network externalities that set in with a lag. In equilibrium, agents follow innovation cycles with a frequency that is lower than optimal, so there is too much delay. One extreme case is the possibility of inefficient collapse: for some parameters there is no investment in equilibrium, even though it is socially optimal that agents (eventually) invest in cycles. Another feature of the model is the tendency of agents to synchronize their individual decisions, and thus the outcome of the aggregate economy does not smooth out the non- convexities present at the microeconomic level.

Keywords: Machine replacement; network externalities; investment cycles; delay. (search for similar items in EconPapers)
JEL-codes: E22 E32 D92 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pke
Date: 2003-02-04
Note: Type of Document - pdf file; prepared on Scientific Workplace; to print on any printer; pages: 42 ; figures: included in text
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0302001

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