The Scale of Production in Technological Revolutions

Many manufacturing industries, including the computer industry, have seen large increases in productivity growth rates and have experienced a reduction in average establishment size and a decrease in the variance of the sizes of plants. A vintage capital model is introduced where learning increases productivity on any given technology and firms choose when to adopt a new vintage. In the model, a rise in the rate of technological change leads to a decrease in both the mean and variance of the size distribution. Thanks to April Franco, Gautam Gowrisankaran, Tom Holmes, Hugo Hopenhayn, Boyan Jovanovic, and Glenn MacDonald for very helpful comments. Grateful acknowledgment is given to funding from NSF grant SBR-9809530. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.