Timing replacement decisions under discontinuous technological change

The authors consider the problem of deciding whether to keep a piece of equipment or replace it with a more advanced technology in an environment of technological change. The present model assumes that the costs associated with the presently available technology and future technologies are known, but that the appearance times of future technologies are uncertain. The authors develop a procedure for computing the optimal keep-or-replace decision that iteratively incorporates a technological forecast. For a certain class of situations, they show that their approach requires the minimum possible amount of forecasted data.