Abstract
In the short run, capital-saving technological change may reduce fixed cost whereas labor-saving innovation reduces variable costs. It is shown that risk averse firms prefer the former type of innovation when facing random demand. Deterministic incentives for competitive firms are also discussed.
This paper embodies the views of the authro and does not represent the views or policy of the Federal Reserve System or the Federal Reserve Bank of New York. The author is grateful for helpful comments from Robert Clower and an anonymous referee.
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References
Sato, R. and M. J. Beckmann, 1968, Neutral inventions and production functions, Review of Economic Studies 35, 57–65.
Silberberg, Eugene, 1974, The theory of the firm in “long run” equilibrium, American Economic Review 64, 734–741.
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Shaffer, S. Selective cost-reducing innovation. Rev Ind Organ 1, 240–245 (1984). https://doi.org/10.1007/BF02457067
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DOI: https://doi.org/10.1007/BF02457067