Technological breakthroughs and asset replacement

The authors analyze the optimal replacement of assets under continuous and discontinuoustechnological change. They investigate the variable lifetime of assets in an infinite-horizonreplacement problem. Due to deterioration, the maintenance cost increases when the assetbecomes older. Because of technological change, both maintenance and new capital costsdecrease for a fixed asset age. The dynamics of the optimal lifetime is investigatedanalytically and numerically under technological change in the cases of one and severaltechnological breakthroughs. It is shown that the breakthroughs cause irregularities(anticipation echoes) in the asset lifetime before the breakthrough time....