The adoption and adaptation of externally originated ideas

Abstract

This is a vintage–capital model of technology adoption that takes seriously the fact that new inventions are specific to the environment in which they emerge. The key feature of the model is that the firm can invest resources in R&D to adapt externally originated ideas to the environment in which they are used. We show that because of the possibility of investing in R&D, differences between the inventor's and user's environments can explain why some firms invest in old techniques. Several predictions of the model are consistent with observation.