Nelson and Winter (1982) Model

Murat Yildizoglu

Date: November 2000

This is a model of industry evolution with innovation and global imitation.

It implements some basic ideas about the innovation process in the firms and studies their consequences on the dynamics of the industry:

• Firms behaviour is conditioned by their bounded rationality (rule based decision process and inertia);

• Specific R&D investment is necessary for innovation;

• The competitive advantage of firms is based on their innovative capacity;

• The selection of firms is determined by their innovative capacity;

• Innovative behaviour of firms hence determines the structure of the industry and its evolution.