The Adoption and Adaptation of Externally Originated Ideas

This is a model of technology adoption that takes seriosly the fact that new inventions are specific to the enviromment 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 possibliity of investing in R&D, differences between the inventor's and user's environments can explain why some firms invest in old techniques. We also find that investment lags do not necessarily capture firm-specific effects even if adoption costs are convex.