Timing Replacement Decisions Under Discontinuous Technological Change

摘要

Researchers consider the problem of deciding whether to keep a piece of equipment or replace it with a more advanced technology in an environment of technological change. The model assumes that the costs associated with the presently available technology and future technologies are known, but that the appearance times of future technologies are uncertain. A procedure is developed for computing the optimal keep or replace decision that iteratively incorporates a technological forecast. For a certain class of situations, it is shown that the approach requires the minimum possible amount of forecasted data.