The Adoption of New Technologies : Location, Learning and Asset Pricing Implications

This paper analyzes the optimal investment strategy of two firms confronted with the option to adopt a new technology. I add two key features: location and learning. A firm gains relative advantage entirely due to its geographic placement - this is the location benefit. Firms also learn from the adoption experience of their rival - this is the learning benefit. Imperfect competition induces firms to adopt early while learning induces firms to wait. This tradeoff has two implications: First, firms in better locations should never adopt after their rivals; second, technology adoption should be geographically clustered. These implications are consistent with the direct evidence regarding technology adoption. Since investment in a new technology is a growth option, location and learning also affect asset prices. I show that firms' risk loadings (beta's) and returns co-vary positively for geographically close firms