Abstract
This paper attempts to bridge the gap between R&D models that do not consider technology adoption decisions and technology adoption models that do not consider R&D decisions. It develops and analyzes a decision-theoretic model on the joint decisions of R&D and technology adoption of a firm. Two interesting comparative statics results are obtained. First, an increase in the cost of R&D reduces the incentive for a firm to do R&D. Secondly, an increase in the cost of technology adoption or an increase in the market interest rate reduces the incentive for a firm to adopt new technology and also reduces the incentive for a firm to do R&D. Under certain conditions, an increase in the cost of R&D increases the incentive for a firm to adopt new technology.
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