The timing of technology adoption by a cost-minimizing firm

This paper deals with the timing of technology adoption by a cost-minimizing firm. Technological progress is assumed to reduce costs and is modelled by a geometric Brownian motion. The firm may have any number of options to switch to a more efficient technology. For each switch in a sequence, a distinct option value is identified, causing a delay in the adoption of new technologies. As the value of each option increases when the number of remaining technology switches is reduced, underestimating efficiency gains by future technology adoptions may result in an additional (suboptimal) delay in the adoption of new technologies.