16/05/2012, 14:30 — 15:30 — Room P3.10, Mathematics Building Verena Hagspiel , CentER, Department of Econometrics and Operations Research Tilburg University, The Netherlands

Optimal Technology Adoption when the Arrival Rate of New
Technologies Changes

Our paper contributes to the literature of technology adoption. In
most of these models it is assumed that after the arrival of a new
technology the probability of the next arrival is constant. We
extend this approach by assuming that after the last technology
jump the probability of a new arrival can change. Right after the
arrival of a new technology the intensity equals a specific value
that switches if no new technology arrival has taken place within a
certain period after the last technology arrival. We look at
different scenarios, dependent on whether the firm is threatened by
a drop in the arrival rate after a certain time period or expects
the rate of new arrivals to rise. We analyze the effect of variance
of time between two consecutive arrivals on the optimal investment
timing and show that larger variance accelerates investment in a
new technology. We find that firms often adopt a new technology a
time lag after its introduction, which is a phenomenon frequently
observed in practice. Regarding a firm's technology releasing
strategy we explain why clear signals set by regular and steady
release of new product generations stimulates customers buying
behavior. Depending on whether the arrival rate is assumed to
change or be constant over time, the optimal technology adoption
timing changes significantly. In a further step we add an
additional source of uncertainty to the problem and assume that the
length of the time period after which the arrival intensity changes
is not known to the firm in advance. Here, we find that increasing
uncertainty accelerates investment, a result that is opposite to
the standard real options theory.