Dynamic Modelling of Innovation Process Adoption with Risk Aversion and Learning.

This paper presents a model that incorporates dynamic factors of how firms decide on the adoption of an innovation process. Two factors in particular are considered: learning by using and expectations about future prices of the innovation. The firm's diffusion path is derived from a dynamic optimization task allowing for the decisionmakers to be risk averse. The paper investigates the effects of risk aversion, learning, and firm size. Various properties of the model are illustrated numerically. Copyright 1990 by Royal Economic Society.