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Sequential Research and the Adoption of Innovations


  • Bhattacharya, Sudipto
  • Chatterjee, Kalyan
  • Samuelson, Larry


The authors examine a firm able to adopt an innovation of uncertain profitability; reject the innovation; or delay deciding in order to acquire information on profitability. Deriving the optim al strategy from established sequential sampling literature, the authors constru ct a theory of the diffusion of innovation. Firms are assumed to hold identical prior expectations of an innovation's profitability, and to conduct privately ob served experiments on its profitability. The naturally arising distribution of e xperimental results yields a distribution of adoption times exhibiting establish ed facts on innovation diffusion. Finally the authors examine the implications o f strategic interactions between firms, where this affects both the learning pro cess and the results of adoption. Copyright 1986 by Royal Economic Society.

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  • Bhattacharya, Sudipto & Chatterjee, Kalyan & Samuelson, Larry, 1986. "Sequential Research and the Adoption of Innovations," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 219-243, Suppl. No.
  • Handle: RePEc:oup:oxecpp:v:38:y:1986:i:0:p:219-43

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    References listed on IDEAS

    1. Lars Calmfors & Ã…sa Johansson, 2001. "Unemployment Benefits, Contract Length and Nominal Wage Flexibility," CESifo Working Paper Series 514, CESifo Group Munich.
    2. Claude d'Aspremont & Rodolphe Dos Santos Ferreira & Louis-André Gérard-Varet, 1990. "On Monopolistic Competition and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 895-919.
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    5. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-629, June.
    6. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
    7. Heijdra, Ben J. & Ligthart, Jenny E., 1997. "Keynesian Multipliers, Direct Crowding Out, and the Optimal Provision of Public Goods," Journal of Macroeconomics, Elsevier, vol. 19(4), pages 803-826, October.
    8. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    9. Calmfors, Lars & Johansson, Åsa, 2001. "Unemployment Benefits, Contract Length And Nominal Wage Flexibility," Seminar Papers 692, Stockholm University, Institute for International Economic Studies.
    10. Jin, Jim Y., 2001. "Monopolistic competition and bounded rationality," Journal of Economic Behavior & Organization, Elsevier, vol. 45(2), pages 175-184, June.
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    Cited by:

    1. Alvarez, Luis H. R. & Stenbacka, Rune, 2001. "Adoption of uncertain multi-stage technology projects: a real options approach," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 71-97, February.
    2. Jabbar, Mohammad A. & Beyene, Hailu & Mohamed Saleem, M A & Gebreselassie, Solomon, 1998. "Adoption pathways for new agricultural technologies : An approach and an application to Vertisols management technology in Ethiopia," Research Reports 182901, International Livestock Research Institute.
    3. Erin L. Scott & Pian Shu & Roman M. Lubynsky, 2015. "Are “Better” Ideas More Likely to Succeed? An Empirical Analysis of Startup Evaluation," Harvard Business School Working Papers 16-013, Harvard Business School.
    4. Doraszelski, Ulrich, 2004. "Innovations, improvements, and the optimal adoption of new technologies," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1461-1480, April.
    5. Farzin, Y. H. & Huisman, K. J. M. & Kort, P. M., 1998. "Optimal timing of technology adoption," Journal of Economic Dynamics and Control, Elsevier, vol. 22(5), pages 779-799, May.
    6. Verkerk, M. & van der Pijl, G.J. & van Asperen, E., 2009. "ICT as an Enabler for Innovation Adoption," Econometric Institute Research Papers EI 2009-15, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    7. Karaaslan, Mehmet E., 2007. "Monopoly, Diversification through Adjacent Technologies, and Market Structure," MPRA Paper 7607, University Library of Munich, Germany.
    8. Dutta, Jayasri & Prasad, Kislaya, 1996. "Learning by observation within the firm," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1395-1425, August.
    9. Vesa Kanniainen, 1993. "Optimal production of innovations under uncertainty," Journal of Economics, Springer, vol. 57(2), pages 147-168, June.
    10. Aramonte, Sirio, 2015. "Innovation, investor sentiment, and firm-level experimentation," Finance and Economics Discussion Series 2015-67, Board of Governors of the Federal Reserve System (U.S.).
    11. Fabiano Schivardi & Martin Schneider, 2008. "Strategic Experimentation and Disruptive Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 386-412, April.
    12. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
    13. Ahsanuzzaman, Ahsanuzzaman, 2015. "Duration Analysis of Technology Adoption in Bangladeshi Agriculture," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 200406, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    14. Bolton, P. & Harris, C., 1996. "Strategic Experimentation : A Revision," Discussion Paper 1996-27, Tilburg University, Center for Economic Research.
    15. Yoris A. Au & Kim Huat Goh & Robert J. Kauffman & Frederick J. Riggins, "undated". "Planning Technology Investments For High Payoffs: A Rational Expectations Approach To Gauging Potential And Realized Value In A Changing Environment," Working Papers 0014, College of Business, University of Texas at San Antonio.
    16. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
    17. John C. Persons & Vincent A. Warther, "undated". "Boom and Bust Patterns in the Adoption of Financial Innovations," Research in Financial Economics 9601, Ohio State University.

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