An option-value approach to technology adoption in U.S. manufacturing: Evidence from microdata

Numerous empirical studies have examined the role of firm and industry heterogeneity in the decision to adopt new technologies using a Net Present Value framework. However, as suggested by the recently developed option-value theory, these studies may have overlooked the role of investment reversibility and uncertainty as important determinants of technology adoption. Using the option-value investment model as my underlying theoretical framework, I examine how these two factors affect the decision to adopt three advanced manufacturing technologies. My results are consistent with the option-value model's prediction that plants operating in industries facing higher investment reversibility and lower degrees of demand and technological uncertainty are more likely to adopt advanced manufacturing technologies.