Economics at your fingertips  

Machine replacement under evolving deterministic and stochastic costs

Yuri Yatsenko () and Natali Hritonenko

International Journal of Production Economics, 2017, vol. 193, issue C, 491-501

Abstract: The infinite-horizon cost minimization and the real-option stopping problem are used to analyze serial replacement of a single asset under improving technology. It is shown that both techniques produce the same (equal life) replacement policy when exponential technological improvements affect the operating cost and new asset cost in the same way. Next, this result is extended to the stopping problem under evolving stochastic costs. Under general improving technology, the expected asset lifetimes appear to be different for sequential replacement cycles and depend on the future cost evolution. Numeric experiments are provided and managerial implications of the obtained outcomes are discussed.

Keywords: Stochastic replacement costs; Improving technology; Infinite-horizon optimization; Real options; Stopping problem (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

International Journal of Production Economics is currently edited by R. W. Grubbström

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-11-11
Handle: RePEc:eee:proeco:v:193:y:2017:i:c:p:491-501