Outsourcing and Technological Change

We present a dynamic model where the probability of outsourcing production is increasing in the firm’s expectation of technological change. As the pace of innovations in production technologies increases, the less time the firm has to amortize the sunk costs associated with purchasing and adopting new technologies to produce in-house. Therefore, purchasing from market suppliers, who can afford to use the latest technology, becomes relatively cheaper. The predictions of the model are tested using a panel dataset on Spanish firms for the time period 1990 through 2002. In order to address potential endogeneity problems, we use an exogenous proxy for technological change, namely the number of patents granted by the U.S. patent office classified by technological class. We map the technological classes to the Spanish industrial sectors in which the patents are used and provide causal evidence of the impact of expected technological change on the likelihood and extent of production outsourcing. No prior study has been able to provide such causal evidence. Our results are robust to the inclusion of detailed characteristics of the firms as well as firm fixed effects.outsourcing, technological change

Special Interests and Technological Change

We study an OLG economy where productivity growth comes from two alternative sources: process innovation and learning-by-doing. There is a trade-off between the two in so far as frequent technological updates reduce the scope for learning on existing technologies. A conflict is shown to arise between the young and the old, because the former favor innovation while the latter prefer learning. We model the interaction between overlapping generations and policy makers as a dynamic common agency problem, where competing generations invest a certain amount of resources to lobby either for the maintenance of the current technology or the adoption of a new one. By focusing on truthful Markov perfect equilibria, we characterize the political equilibrium and show its dependence on the underlying demographic, technological and preference parameters.Technological change, Technology option, Pressure goups, Dynamic common agency

Microeconomic policy and technological change

Economic policy ; Research and development ; Microeconomics ; Technology

Endogenous Technological Change under Uncertainty

How does risk or uncertainty in the productivity of research affect the growth rate of the economy? To answer this question, a model of endogenous technological change is used where sustained growth stems from intentional investments in R&D from profit-maximizing firms. The uncertainty arises from the productivity of these investments in R&D. The main result of this analysis is that the relationship between long-run growth and uncertainty (on the productivity of knowledge creation) depends on two main factors - the returns to scale in knowledge creation (increasing or non-increasing) and the value of the elasticity of intertemporal substitution (higher or lower than some critical value). Based on empirical studies on the returns to scale in knowledge creation (”non-increasing”) and the value of the elasticity of intertemporal substitution (”higher than the critical value”), we expect a negative relationship between long-run growth and uncertainty regarding the productivity of knowledge creation.Long-run growth, Technological change, Uncertainty

Spurious Investment Specific Technological Change

imperfect competition, price indices, vintage capital.

Cyclical Skill-Biased Technological Change

Over the past two decades, technological progress has been biased towards making skilled labor more productive. What does skill-biased technological change imply for business cycles? To answer this question, we construct a quarterly series for the skill premium from the CPS and use it to identify skill-biased technology shocks in a VAR with long run restrictions. We find that hours worked fall in response to skill-biased, but not in response to skill-neutral improvements in technology. Skill-biased technology shocks are associated with increases in the relative price of investment, indicating that capital and skill are substitutes in aggregate production.skill-biased technology, skill premium, VAR, long-run restrictions, capital-skill complementarity, business cycle

Technological Change and the Environment

Environmental policy discussions increasingly focus on issues related to technological change. This is partly because the environmental consequences of social activity are frequently affected by the rate and direction of technological change, and partly because environmental policy interventions can themselves create constraints and incentives that have significant effects on the path of technological progress. This paper, prepared as a chapter draft for the forthcoming Handbook of Environmental Economics (North-Holland/Elsevier Science), summarizes for environmental economists current thinking on technological change in the broader economics literature, surveys the growing economic literature on the interaction between technology and the environment, and explores the normative implications of these analyses. We begin with a brief overview of the economics of technological change, and then examine three important areas where technology and the environment intersect: the theory and empirical evidence of induced innovation and the related literature on the effects of environmental policy on the creation of new, environmentally friendly technology; the theory and empirics of environmental issues related to technology diffusion; and analyses of the comparative technological impacts of alternative environmental policy instruments. We conclude with suggestions for further research on technological change and the environment.technological change, induced innovation, environment, policy

Induced Technological Change under Technology Competition

We develop a partial one-sector model with capital, natural resources, and labor as production factors, and endogenous technological change through research. Production exhibits increasing returns to scale. We compare the response of output and resource use to a change in resource prices with and without induced technological change (ITC). It is shown that induced technological change is insignificant in reducing resource use when there is one representative technology and output demand is inelastic to prices. In contrast, substantial gains from ITC appear when we allow for two competing technologies that can be employed for production, while these technologies are good substitutes. Also, in case of two technologies, conditions are specified under which multiple balanced growth paths exist, and it is shown that because of ITC, a temporary resource tax can lock out the economy from a resource intensive path and lock in to a resource extensive path.Induced technological change, environmental taxes, partial equilibrium