Technology Choice and Saving in the Presence of a Fixed Adoption Cost

Charles Leung and Chung-Yi Tse

Review of Development Economics, 2001, vol. 5, issue 1, 40-48

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.

Date: 2001
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