Learning from Own and Foreign Experience: Technological Adaptation by Imitating Firms

In this paper we study the adaptive behavior of firms which repeatedly have to make a production decision. In a single good market the firms use own experience as well as information gathered by observing competitors to iteratively choose a production technology out of a given set. The adaptive learning of the firms is described in a dynamic model and analyzed in a simulation framework. We show that a small but positive propensity to imitate is optimal for the firms and yields production efficiencies above 95% of the maximal value. Furthermore, we observe that in a competitive situation firms using optimal propensities to imitate outmatch pure imitators and nonimitators in production efficiency as well as in profits.