Abstract
When a production process requires two extremely complementary inputs, conventional wisdom holds that a firm would always upgrade them simultaneously. We show, however, that if upgrading each input involves a fixed cost, the firm may upgrade them at different dates, "asynchronously." This insight helps us understand why productivity rises with the age of a plant, why investment in structures is more spiked than equipment investment, and why plants have spare capacity. The bigger point of the paper is that complementarity does not necessarily imply comovement -not even for a single decision maker.
Original language | English (US) |
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Pages (from-to) | 15-29 |
Number of pages | 15 |
Journal | American Economic Review |
Volume | 90 |
Issue number | 1 |
DOIs | |
State | Published - Mar 2000 |
ASJC Scopus subject areas
- Economics and Econometrics