Long-run technology choice with endogenous local capacity

Fei Shi

Economic Theory, 2015, vol. 59, issue 2, 377-399

Abstract: We develop a two-stage, two-location model to investigate long-run technology choice with endogenous capacity constraints. Rational managers determine the maximum capacities (and mobility constraints). Then, boundedly rational agents play a coordination game with the possibility to migrate. We consider two alternative strategy sets and two different objective functions for the managers and show that they affect the long-run technology choice in a non-trivial way. If the managers only care about efficiency in their respective locations, either coexistence of conventions or global coordination on the risk-dominant equilibrium will be selected, depending on the (effective) capacities of both locations. If they are concerned with scale and can choose mobility constraints, global coordination on the risk-dominant equilibrium without mobility will be selected in the long run. We then change the basic interaction to a $$n\times n$$ n × n pure coordination game where mis-coordination results in zero payoff, and show that, regardless of the constraint choices, all the agents will coordinate on the most efficient equilibrium. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Location models; Long-run technology choice; Stochastic learning; C72; C73; D83 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s00199-014-0838-7

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