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)|
|Number of pages||15|
|Journal||American Economic Review|
|Publication status||Published - Mar 2000|
ASJC Scopus subject areas
- Economics and Econometrics