The factor bias of technical change and technology adoption under uncertainty

Date
1989
Authors
Kim, Tae-Kyun
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Altmetrics
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Research Projects
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Economics
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Abstract

This dissertation examines the impact of uncertainty on the factor bias of technical change and technological adoption behavior. An Ito stochastic control model, which is characterized by endogenous factor-augmenting technical change, is developed to investigate the relationship between uncertainty and the bias of technical change;The results show that, if a risk-averse firm faces input price uncertainty, technical change will be biased toward the input that has the more certain price. Output price uncertainty does not affect the direction of technical change bias but does affect the degree of bias. Under output price uncertainty and an input price uncertainty, technical change may be biased toward the input that has a certain price if the contemporaneous correlation coefficient between the two processes is negative or insignificantly positive. On the contrary, if the coefficient is significantly positive, technical change may be biased toward the input that has an uncertain price;It is also shown that, under production uncertainty, technical progress will be biased toward risk-reducing inputs and against risk-increasing inputs. The degree of technical change bias would be increased as the riskiness increases or as the firm becomes more risk averse;The model is integrated to incorporate hedging or forward contracts. Under output price uncertainty, the existence of forward markets has no effect on the direction of technical change bias but has an effect on the degree of bias. Under output price uncertainty and an input price uncertainty, if the forward market is unbiased, technical change will be biased toward the input that has a certain price;This dissertation also examines the effect of price uncertainty on technology adoption patterns and technological change. The results indicate that a reduction in the variance of output price will increase the rate of technology adoption and the intrafirm diffusion speed of yield-increasing technologies. The opposite is true for cost-reducing technologies.

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Economics
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