An Option-Value Approach to Technology in U.S. Maufacturing: Evidence from Plant-Level Data
July 2000
Working Paper Number:
CES-00-12
Abstract
Numerous empirical studies have examined the role of firm and industry heterogeneity in the decision to adopt new technologies using a Net Present Value framework. However, as suggested by the recently developed option-value theory, these studies may have overlooked the role of investment reversibility and uncertainty as important determinants of technology adoption. Using the option-value investment model as my underlying theoretical framework, I examine how these two factors affect the decision to adopt three advanced manufacturing technologies. My results support the option-value model's prediction that plants operating in industries facing higher investment reversibility and lower degrees of demand and technological uncertainty are more likely to adopt advanced manufacturing technologies.
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demand,
profitability,
investment,
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manufacturing,
industrial,
technology,
technological,
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innovation,
innovate,
technology adoption,
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