MARKOVIAN DETERIORATION AND TECHNOLOGICAL-CHANGE

We consider the classic equipment replacement problem under Markovian deterioration with the additional feature that the replacement technol ogy is subject to change via a breakthrough. First, we examine the int eraction between deterioration and technological change and derive som e general properties regarding this relationship that can be used to r ule out some suboptimal actions. Next, we show that although the possi bility of a breakthrough does act as inducement to keep the existing t echnology longer in certain circumstances, this is not generally the c ase. Finally, we present an algorithmic forecast horizon approach to d etermining whether or not to keep the present piece of equipment that makes use of a finite amount of future forecasted data. We demonstrate that our approach, which is specifically designed for this problem, i s both simple to implement and more ''efficient'' than existing genera l purpose approaches, in the sense that the forecast horizons generate d are shorter.