Keeping up with the technology pace: A DNS-curve and a limit cycle in a technology investment decision problem [An article from: Journal of Economic Behavior and Organization]

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Description:
In order to keep up with its economic environment a firm should respond to new technological developments. In this paper we establish the optimal technology investment decision within a dynamic model, in which the baseline technology level rises over time. The problem is analyzed by designing a two state optimal control model. It turns out that in the state space a Dechert-Nishimura-Skiba (DNS)-curve can be determined that separates different long run outcomes, viz., zero investment, constant positive investment, or a cyclical sequence of zero and positive investment.